The Boston Beer Company Annual Report 2016 Dear Shareholders

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THE BOSTON BEER COMPANY ANNUAL REPORT 2016 DEAR SHAREHOLDERS

IN 2016, THE NUMBER OF INDEPENDENT BREWERS PASSED THE 5,000 THRESHOLD FOR THE FIRST TIME IN HISTORY. AS WE HAVE SAID OFTEN, THIS IS THE GREATEST TIME EVER TO BE A BEER LOVER. IT’S ALSO THE MOST COMPETITIVE TIME TO BE A BREWER AS THE SIZE AND STRUCTURE OF THE BEER INDUSTRY CONTINUE TO CHANGE.

The top ten craft brewers, including Samuel Adams, account for more than a third of total craft beer sold and the next 120 account for another 35% of the U.S. craft beer market. Approximately 20% of craft beer brewed in the U.S. is made by much smaller breweries and tap rooms with hyper-local distribution. While few if any of these brands will achieve broad distribution, they are brewing good beer, and they are relevant in their own cities and towns. At the other end of the size spectrum, we see the world’s biggest foreign-owned brewers continuing to buy small, American craft brewers, removing their independent craft ownership, and adding them to their enormous global portfolios of brands.

These changes in the competitive landscape have impacted our growth rates in 2016. The good news is we have weathered challenging times before, and we have been successful in learning how to navigate choppy seas. First, we stay true to our mission: to create long term profitable growth by offering the highest quality products to the U.S. beer drinker. We have tripled our size since 2004, and we believe we can return to growth because we have the people, products, and passion to do it. Not all growth is about increased sales. In 2016 we challenged ourselves to work more effectively and efficiently. We have been growing internally with improved systems, building a new senior management team, and a continuing commitment to innovation.

One of the cornerstones of Boston Beer since its inception has been: change is good! And in 2016, despite our challenges, lots of good changes happened.

LEADERSHIP TEAM UPDATES

Over the past fourteen months, we expanded and solidified a new senior leadership team. At the start of 2016 we welcomed our new Chief Financial Officer Frank Smalla, and Senior Vice President for Supply Chain Quincy Troupe. Later in the year, we expanded the leadership team to include our Chief Marketing Officer Jon Potter, and promoted Cheryl Fisher to Vice President Human Resources and Tara Heath to Vice President Legal and Deputy General Counsel.

This invigorated team is working closely together, and has set ambitious goals while laying the foundation for long term growth for the company. We have already found ways to save money, opportunities to increase innovation, and strategies to achieve greater synergy internally.

While the 2016 Annual Report focuses on 2016 events, we want to include an important announcement made in February 2017. After 22 years as part of the Boston Beer family, and 17 years as President and CEO, Martin Roper has informed the Board of Directors of his plans to retire in 2018. Boston Beer has grown eight fold during Martin’s tenure, and he deserves enormous credit for that growth. He has given us ample time to find a replacement, and in the meantime, we know he will continue to lead the Company until a successor is in place. SAMUEL ADAMS STANDS FOR INDEPENDENCE, THE OPTIMISM OF THE AMERICAN DREAM, AND A BETTER BEER FOR ALL U.S. BEER DRINKERS.

A SNAPSHOT OUR FAMILY OF 2016 OF BEVERAGES

A very visible endeavor in 2016 was a complete redesign of our Another constant at Boston Beer is our boundless curiosity. We Samuel Adams identity and packaging to reflect a bolder, patriotic maintain our leadership position by exploring, innovating, and look. The process took us back to square one, to the day that we first leading the charge for new beers and other beverages. chose to name our beer after Samuel Adams. Samuel was a rabble- rousing patriot who doggedly fought for independence and played a Among the “Better Beer” category – which includes craft beer, crucial role in the American Revolution. We’ve prominently displayed imported beers, and craft-like domestic specialties from the big an image of the iconic statue of Samuel Adams at Boston’s historic global brewers – Samuel Adams is still one of America’s leading Faneuil Hall, which is located just down the road from our brewery. craft beers. In the cider category, Angry Orchard is maintaining its To us, the star represents colonial America, and we positioned our enviable 60% share of all cider, despite softness in the category. perfect pint glass in the center to reflect that we’re putting great Twisted Tea continues to grow at an impressive double digit rate, beer at the heart of America. We are proud to represent and celebrate and we have a leading share of the hard iced tea niche. what Samuel Adams stands for: passion, commitment, authenticity, and, yes, beer. Our craft beer incubator, A&S Brewing, and its three local brands have continued to develop loyalty in their regions. A&S has been In addition to new styles of Samuel led for five years by entrepreneurial visionary Alan Newman who Adams, we also introduced a new brand completed his five-year commitment at the end of 2016 and to our Boston Beer portfolio: Truly Spiked departed for new adventures. We wish him well. & Sparkling, a hard sparkling water that’s refreshing, gluten free, and low in We have the fundamental building blocks for long term growth. calories, sugars and carbohydrates. Initial We lead several categories, and have excellent distribution and response has been positive, and we look high quality products. The American craft beer business is about forward to growing Truly in this nascent to enter a new phase. Success will accrue to those breweries that category in 2017. focus on innovation, strong management, and quality. The Boston Beer Company has faced challenges before and changed to address In our 33-year history, our core values have remained constant. We the opportunities. Today we are prepared again to respond to the are committed to careful financial management and to offering the changing dynamics in our industry. We thank you for your continued highest quality products. We abide by Jim’s “String Theory”, which support of our company and our beers. says that teamwork and creativity outperform abundant resources. We hire great people; we brew great beers, we provide first class training, and we strive to win.

JIM KOCH MARTIN ROPER CheersCHAIRMAN ! PRESIDENT & CEO BY THE NUMBERS

1,505: TOTAL BBC EMPLOYEES BUILDING 209: NEW HIRES 205: DAYS OF INSTRUCTOR LED TRAINING CLASSES FOR BBC EMPLOYEES

125: CERTIFIED CICERONES AT BBC Culture 8 600 975 120 573 Boston Beer Company Total BuildingSKUs shipped from Bottles sold in BrandsONE day New SKUs added in 2016 Awards Won in 2016 brands in our family all Boston Beer Company at the Boston Brewery 150 Experimental batches Samuel Adams Utopias breweries in 2016 for the Big Hapi & Kosmic brewed in the Samuel won 19 awards, including Mother Funk Grand Cru Adams Nano Brewery a Bronze at the Beer release parties World Cup

600 4,248 1.9MM

CIDER APPLE TOURS GIVEN SOCIAL MEDIA

TREES PLANTED AT THE BOSTON USERS REACHED BUILDING AT THE ANGRY BREWERY IN THROUGH TRULY ORCHARD IN 2016. A RECORD SPIKED & SPAR-

WALDEN, NY HIGH KLING’S POSTS

$14.5MM 961% 43% 47% 2016LENT TO SMALL FOOD & BEVERAGE INCREASE IN INCREASE IN INCREASE IN Connections BUSINESS OWNERS NATIONALLY VIDEO VIEWS ANGRY ORCHARD TWISTED TEA’S

SINCE 2008 AS PART OF BREWING ACROSS SAM MENTIONS REACH ON SOCIAL

THE AMERICAN DREAM ADAMS SOCIAL ACROSS SOCIAL CHANNELS

CHANNELS CHANNELS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to ______Commission file number: 1-14092

THE BOSTON BEER COMPANY, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3284048 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One Design Center Place, Suite 850, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (617) 368-5000 (Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class Name of each exchange on which registered Class A Common Stock NYSE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark YES NO

••if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

••if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ••whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ••whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. ••if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ••whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Large accelerated filer Accelerated filer Non-accelerated filer

••whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). The aggregate market value of the Class A Common Stock ($.01 par value) held by non-affiliates of the registrant totaled $1,396.1 million (based on the average price of the Company’s Class A Common Stock on the New York Stock Exchange on June 25, 2016). All of the registrant’s Class B Common Stock ($.01 par value) is held by an affiliate. As of February 17, 2017, there were 9,306,471 shares outstanding of the Company’s Class A Common Stock ($.01 par value) and 3,197,355 shares outstanding of the Company’s Class B Common Stock ($.01 par value). DOCUMENTS INCORPORATED BY REFERENCE Certain parts of the registrant’s definitive Proxy Statement for its 2017 Annual Meeting to be held on May 18, 2017 are incorporated by reference into Part III of this report. Table of Contents

PART I 1

ITEM 1. Business ��1

ITEM 1A. Risk Factors ��7

ITEM 1B. Unresolved Staff Comments ��13

ITEM 2. Properties ��13

ITEM 3. Legal Proceedings ��13

ITEM 4. Mine Safety Disclosures ��13

PART II 14

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities ��14

ITEM 6. Selected Consolidated Financial Data ��17 ITEM 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations ��18

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ��25

ITEM 8. Financial Statements and Supplementary Data ��26 ITEM 9. Changes in and Disagreements with Accountants on Accounting

and Financial Disclosures ��49

ITEM 9A. Controls and Procedures ��49

ITEM 9B. Other Information ��50

PART III 51

ITEM 10. Directors, Executive Officers and Corporate Governance ��51

ITEM 11. Executive Compensation ��51 ITEM 12. Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters ��52

ITEM 13. Certain Relationships and Related Transactions, and Director Independence ��52

ITEM 14. Principal Accountant Fees and Services ��52

PART IV 53

ITEM 15. Exhibits and Financial Statement Schedules ��53

ITEM 16. Form 10-K Summary ��54

SIGNATURES...... 55 PART I

PART I

ITEM 1. Business

General

The Boston Beer Company, Inc. (“Boston Beer” or the “Company”) is one under contract arrangements at other brewery locations. The Samuel of the largest craft brewers in the United States. In fiscal 2016, Boston Adams Company-owned breweries are located in Boston, Massachusetts Beer sold approximately 4.0 million barrels of its proprietary products. (the “Boston Brewery”), Cincinnati, Ohio (the “Cincinnati Brewery”) and Breinigsville, Pennsylvania (the “Pennsylvania Brewery”). The A&S Brewing During 2016, the Company sold over sixty beers under the Samuel Adams® ® Company-owned small breweries are located in Los Angeles, California and the Sam Adams brand names, over twenty hard cider beverages (the “Angel City Brewery”), Miami, Florida (the “Concrete Beach Brewery”) under the Angry Orchard® brand name, thirteen flavored malt beverages ® and Brooklyn, New York (the “Coney Island Brewery”). The Company owns under the Twisted Tea brand name, four hard seltzer beverages under an apple orchard and cidery located in Walden, New York (the “Orchard”). the Truly Spiked & Sparkling™ brand name, and over forty beers under four of the brand names of its subsidiary, A&S Brewing Collaborative LLC, The Company’s principal executive offices are located at One Design under the tradename A&S Brewing. Center Place, Suite 850, Boston, Massachusetts 02210, and its telephone number is (617) 368-5000. Boston Beer produces alcohol beverages including malt beverages (“beers”), hard cider and hard seltzer at Company-owned breweries and

Industry Background

Before Prohibition, the United States beer industry consisted of hundreds of The domestic beer industry, excluding Better Beers, has experienced a small breweries that brewed full-flavored beers. After the end of Prohibition, decline in shipment volume over the last ten years. The Company believes most domestic brewers shifted production to less flavorful, lighter beers, that this decline is due to declining alcohol consumption per person in the which use lower-cost ingredients, and can be mass-produced to take population, drinkers trading up to drink high quality, more flavorful beers advantage of economies of scale in production. This shift towards mass- and increased competition from wine and spirits companies. produced beers coincided with consolidation in the beer industry. Today, two major brewers, Anheuser-Busch InBev (“AB InBev”) and MillerCoors The Company’s Twisted Tea products compete within the flavored malt LLC (“MillerCoors”), comprise over 80% of all United States domestic beer beverage (“FMB”) category of the beer industry (and the Company’s production, excluding imports. Twisted Tea products are included in generic references to the Company’s “beers” in this report). The Company believes that the FMB category The Company’s beers are primarily positioned in the Better Beer category comprises approximately 4% of United States beer consumption and of the beer industry, which includes craft (small, independent and traditional) that the volume comprising the FMB category grew approximately 5% in brewers, domestic specialty beers and most imports. Better Beers are 2016. This category is highly competitive due to, among other factors, determined by higher price, quality, image and taste, as compared with the presence of large brewers and spirits companies in the category, the regular domestic beers. Samuel Adams is one of the largest brands in the advertising of malt-based spirits brands in channels not available to the Better Beer category of the United States brewing industry. The Company’s parent brands and a fast pace of product innovation. A&S Brewing brands, which include the Traveler Beer Co.®, the Angel City Brewing Company®, the Concrete Beach Brewery® and the Coney The Company’s Angry Orchard ciders compete within the hard cider Island® Brewing Company also compete in the Better Beer category. The category that has similar characteristics to the beer industry for reporting Company estimates that in 2016 the Better Beer category percentage and regulatory purposes. The Company believes that the hard cider volume growth was approximately 6% with the craft beer category volume category comprises less than 1% of United States beer consumption. This growth approximately 7% and total beer category volume essentially flat. category is small and highly competitive and includes large international The Company believes that the Better Beer category is approximately and domestic competitors, as well as many small regional and local hard 29% of United States beer consumption by volume. cider companies. The hard cider category experienced very fast growth until a slowing in 2015 and category volume decreased approximately 12% in 2016.

BOSTON BEER COMPANY Form 10-K 1 PART I Item 1 Business

The Company’s Coney Island Hard Sodas and Truly Spiked & Sparkling the second half of 2015 and Truly Spiked & Sparkling in the second half of beverages compete within the hard soda and hard seltzer categories, 2016. The Company believes the hard soda category comprises less than respectively, and these categories have similar characteristics to the 0.5% of United States beer consumption and that the volume comprising beer industry for reporting and regulatory purposes. These categories this category increased in 2016 because of full year availability, but, as are small, in their early stages of development, highly competitive and best as can be determined, declined in the fourth quarter. The Company include large international and domestic competitors. The Company’s believes the hard seltzer category grew in 2016 due to new entrants and Coney Island Hard Sodas and Truly Spiked & Sparkling beverages are expanded distribution, but still comprises less than 0.1% of United States included in generic references to the Company’s “beers” in this report. beer consumption and may have significant seasonality. The Company launched Coney Island Hard Root Beer nationally during

Description of Business

The Company’s business goal is to become the leading supplier in the Better and Samuel Adams Old Fezziwig® Ale were brewed and included in the Beer category and the other categories where it competes by creating Winter Classics variety pack. Additionally, beginning in 2011 the Company and offering high quality full-flavored alcohol beverages. With the support began limited releases of seasonal beers in various packages. In 2016, of a large, well-trained sales organization and world-class brewers, the these limited seasonal release beers included Samuel Adams Crystal Pale Company strives to achieve this goal by offering great beers, hard ciders Ale, Samuel Adams Porch Rocker®, Samuel Adams Twenty Pounds of and hard seltzers, and increasing brand availability and awareness through Pumpkin and Samuel Adams White Christmas. advertising, point-of-sale, promotional programs and drinker education. After being in test markets during 2013, the Company began a national rollout of Samuel Adams Rebel® IPA, a West Coast style IPA brewed with Beers, Hard Ciders and Hard Seltzers hops from the Pacific Northwest, in early 2014. Since the national rollout, the Company has added additional styles to support Samuel Adams Rebel Marketed IPA, including Samuel Adams Rebel Grapefruit IPA, Samuel Adams Rebel ® The Company’s strategy is to create and offer a world-class variety of Juiced IPA, Sam Adams Rebel Rouser IPA and Samuel Adams Rebel ® traditional and innovative alcohol beverages, with a focus on promoting Raw IPA. In early 2016, the Company introduced Samuel Adams Rebel IPA the Samuel Adams brand, but supported by a portfolio of complementary Pack of Rebels which includes Samuel Adams Rebel Cascade IPA which brands. The Angry Orchard brand family was launched in the second half is exclusive to this variety pack. In early 2017, the Company introduced a of 2011 in several markets and achieved national distribution in 2012. reformulation and new packaging of its original Samuel Adams Rebel IPA. Since 2013, Angry Orchard has been the largest selling hard cider in the The ‘Rebel Reborn’ reformulation includes experimental hops that create United States. The Twisted Tea brand family has grown each year since a more tropical and piney IPA and is being launched nationally during the the product was first introduced in 2001 and has established a loyal first quarter of 2017. drinker following. In 2016, the Company began national distribution of the The Samuel Adams Brewmaster’s Collection is an important part of Truly Spiked & Sparkling brand and it secured a leading position in the the Company’s portfolio and heritage, but receives limited promotional category during 2016. The Company’s A&S Brewing subsidiary currently support. The Samuel Adams Nitro Project was launched in 2016 and has four brands, including Angel City, The Traveler Beer Co., Coney Island included three styles for most of 2016 that were available nationally. The and Concrete Beach. Barrel Room Collection and Limited Edition Beers and certain specialty The Company sells its beverages in various packages. Kegs are sold variety packs are produced in limited quantities and are sold at higher primarily for on-premise retailers, which include bars, restaurants and prices than the Company’s other products. The Company also releases other venues, and bottles and cans are sold primarily for off-premise a variety of specialty draft beers brewed in limited quantities for festivals retailers, which include grocery stores, club stores, convenience stores and Beer Week celebrations. and liquor stores. Since 2012, the Twisted Tea and Angry Orchard brand families have been Samuel Adams Boston Lager® is the Company’s flagship beer that was available nationally. In 2015, the Company began national distribution of first introduced in 1984. The Samuel Adams Seasonal beers are brewed certain styles of The Traveler Beer Co. brand and the Coney Island brand, specifically for limited periods of time and in 2016 included Samuel Adams including Coney Island Hard Root Beer. In 2016, the Company began Cold Snap, Samuel Adams Summer Ale, Samuel Adams OctoberFest, and national distribution of certain styles of the Truly Spiked & Sparkling brand. Samuel Adams Winter Lager. In the early part of 2017, the Company added All of these nationally available brands are available in various packages, two new seasonals to the seasonal program to replace Samuel Adams including cans. The Company will continue to look for complementary Cold Snap. These two new beers include: Samuel Adams Hopscape, opportunities to leverage its capabilities, provided that they do not distract for January and February 2017, and Samuel Adams Fresh as Helles, for from its primary focus on its Samuel Adams brand. February, March and April 2017. The Company continually evaluates the performance of its various beers Certain Samuel Adams beers may be produced at select times during and hard cider styles and the rationalization of its product line as a whole. the year solely for inclusion in the Company’s seasonal variety packs. Periodically, the Company discontinues certain styles and packages. During 2016, Samuel Adams Escape Route®, Samuel Adams Noble Pils, Certain styles or brands discontinued in previous years may be produced Samuel Adams Scotch Ale and Samuel Adams Session Ale were brewed for the Company’s variety packs or reintroduced. and included in the Spring variety pack, Samuel Adams Belgian Session, The Company’s beers, hard ciders and hard seltzers are sold by the Samuel Adams Got to Gose, Samuel Adams Heaven or Helles and Company’s sales force to the same types of customers in similar size Samuel Adams Whitewater IPA were brewed and included in the Summer quantities, at similar price points and through substantially the same variety pack, Samuel Adams Bonfire Blonde, Samuel Adams Hoppy Red, channels of distribution. These beverages are manufactured using similar Samuel Adams Maple Ale and Samuel Adams Toasted Caramel Bock were production processes, have comparable alcohol content and generally brewed and included in the Fall variety pack, Samuel Adams Chocolate fall within the same regulatory environment. Bock, Samuel Adams Ginger Beer, Samuel Adams Hopflake White IPA

2 BOSTON BEER COMPANY Form 10-K PART I Item 1 Business

Product and Packaging Innovations Most products are shipped within days of completion and there has not been any significant product order backlog. The Company has historically The Company is committed to maintaining its position as a leading innovator. received most of its orders from domestic Distributors in the first week of a To that end, the Company continually test brews different beers, hard month for products to be shipped the following month and the Distributor ciders and other alcohol beverages and occasionally sells them under would then carry three to five weeks of packaged inventory (usually at various brand labels for evaluation of drinker interest. The Company also ambient temperatures) and three to four weeks of draft inventory. promotes the annual LongShot® American Homebrew Contest® in which homebrewers and employees of the Company submit their homebrews In an effort to reduce both, the time and temperature the Company’s for inclusion in the LongShot® six-pack in the following year. In 2016, the beers experience at Distributor warehouses before reaching the retail Company sold over sixty Samuel Adams beers commercially and brewed market, in late 2010 the Company introduced its Freshest Beer Program many more test brews. The Company’s Boston Brewery spends most of its with domestic Distributors in several markets. The goal of the Freshest time ideating, testing and developing alcohol beverages for the Company’s Beer Program is to provide better on-time service, forecasting, production potential future commercial development and evaluating ingredients and planning and cooperation with the Distributors, while substantially reducing process improvements for existing beverages. inventory levels at the Distributor. At the close of its 2016 fiscal year, the Company had 159 Distributors participating in the program, which In 2013, the Company completed a two-year research effort to develop a constitutes approximately 77% of its volume. The Company has successfully can to improve the beer drinker’s experience compared to the traditional reduced the inventories of participating Distributors in the aggregate by can. The features of this can were designed to enhance the drinking approximately two weeks, resulting in fresher beer being delivered to experience and include a wider lid with an opening slightly further from retail. The Freshest Beer Program has resulted in lower shipments of the edge of the lid, an extended lip and an hourglass ridge. Currently, approximately 270,000, 87,000, and 103,000 case equivalents in 2016, Samuel Adams Boston Lager, Samuel Adams Seasonal beers, Samuel 2015 and 2014, respectively, as measured at the end of the year by Adams Rebel beers and some of the A&S Brewing beers are available in evaluating the year-on-year inventory reduction from the inventory levels this uniquely-designed can. that might otherwise have been expected. In 2015 and 2016, the Company has been piloting a small group of distributors on a pure replenishment In late 2011, the Company formed a subsidiary, A&S Brewing Collaborative service model within our Freshest Beer Program, which if successful LLC, d/b/a A&S Brewing, as a craft brew incubator headed by Alan would further reduce Distributor inventories. The ordering process has Newman, founder of Magic Hat Brewing Company. A&S Brewing is changed significantly for Distributors that participate in the Freshest Beer headquartered in Burlington, Vermont. The mission of A&S Brewing is Program and has resulted in a shorter period between order placement to find new opportunities in craft brewing, which may be geographical and shipment. There are various risks associated with the Freshest Beer or stylistic and some may be with existing breweries or brewpubs. A&S Program that are discussed in Risk Factors below. Brewing has access to the brewing talents and broad resources of the Company, as it looks for opportunities around the country. A&S Brewing Boston Beer has a sales force of approximately 415 people, which the brands include The Traveler Beer Company, the Angel City Brewery, the Company believes is one of the largest in the domestic beer industry. Concrete Beach Brewery and the Coney Island Brewery. The A&S Brewing The Company’s sales organization is designed to develop and strengthen company-owned small breweries are located in Los Angeles, California relations at the Distributor, retailer and drinker levels by providing educational (the “Angel City Brewery”), Miami, Florida (the “Concrete Beach Brewery”) and promotional programs. The Company’s sales force has a high level of and Brooklyn, New York (the “Coney Island Brewery”). In late 2016, Alan product knowledge and is trained in the details of the brewing and selling Newman left the Company, as planned under his five year employment processes. Sales representatives typically carry samples of the Company’s agreement, and the Company will continue the A&S Brewing business beers, hard ciders and hard seltzers, certain ingredients, such as hops and mission under the new leadership of Rob Kreszswick, who, prior to and barley, and other promotional materials to educate wholesale and his promotion, had been leading A&S Brewing sales since 2014. In 2016, retail buyers about the quality and taste of the Company’s products. The A&S Brewing annual net sales were approximately 4% of the Company’s Company has developed strong relationships with its Distributors and total net sales. retailers, many of which have benefited from the Company’s premium pricing strategy and growth. Sales, Distribution and Marketing The Company also engages in media campaigns — including television, radio, digital and social media, billboards and print. These media efforts are Most all of the Company’s sales are made to a network of approximately 350 complemented by participation in sponsorships of cultural and community wholesalers in the United States and to a network of foreign wholesalers, events, local beer festivals, industry-related trade shows and promotional importers or other agencies (collectively referred to as “Distributors”). These events at local establishments, to the extent permitted under local laws Distributors, in turn, sell the products to retailers, such as pubs, restaurants, and regulations. The Company uses a wide array of point-of-sale items grocery stores, convenience stores, package stores, stadiums and other (banners, neons, umbrellas, glassware, display pieces, signs and menu retail outlets, where the products are sold to drinkers, and in some limited stands) designed to stimulate impulse sales and continued awareness. circumstances to parties who act as sub-distributors. The Company sells its products predominantly in the United States, but also has markets in In 2008, the Company launched its core philanthropic initiative, Samuel ® Canada, Europe, Israel, Australia, New Zealand, the Caribbean, the Pacific Adams Brewing the American Dream . In partnership with ACCION, Rim, Mexico, and Central and South America. the nation’s largest non-profit micro-lender, the program supports small business owners in the food, beverage, and brewing industries through With few exceptions, the Company’s products are not the primary brands access to business capital, coaching, and new market opportunities. The in its Distributors’ portfolios. Thus, the Company, in addition to competing goal is to help strengthen small businesses, create local jobs and build with other beers, hard ciders and hard seltzers for a share of the drinker’s vibrant communities. Since the inception of the Samuel Adams Brewing business, competes with other brewers for a share of the Distributor’s the American Dream program, Samuel Adams and ACCION have worked attention, time and selling efforts. During 2016, the Company’s largest together to loan more than $14.5 million to nearly 1,200 small business customer accounted for approximately 7% of the Company’s net sales. owners who have subsequently repaid these loans at a rate of more than The top three Distributors collectively accounted for approximately 12% 97%. Samuel Adams employees, together with local business partners of the Company’s net sales. In some states and countries, the terms of and community organizations, have provided coaching and mentoring to the Company’s contracts with its Distributors may be affected by laws that more than 7,000 business owners across the country. These efforts have restrict the enforcement of some contract terms, especially those related helped to create or maintain more than 4,700 local jobs. to the Company’s right to terminate the relationship.

BOSTON BEER COMPANY Form 10-K 3 PART I Item 1 Business

Ingredients and Packaging The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site. The Company has been successful to date in obtaining sufficient quantities of the ingredients used in the production of its beverages. These ingredients Yeast. The Company uses multiple yeast strains for production of its include: beers, hard ciders and hard seltzers. While some strains are commercially available, other strains are proprietary. Since the proprietary strains cannot Malt. The two-row varieties of barley used in the Company’s malt are mainly be replaced if destroyed, the Company protects these strains by storing grown in the United States and Canada. The 2015 North American barley multiple cultures of the same strain at different production locations and crop, which supported most 2016 malt needs, was below historical long in several independent laboratories. term averages with regards to both quality and quantity, driven by acreage declines and adverse weather events in key barley growing areas. The Apples. The Company uses special varieties and origins of apples in its 2016 North American barley crop, which will support 2017 malt needs, hard ciders that it believes are important for their flavor profile. In 2016, was generally consistent with historical long term averages with regards these apples were sourced primarily from European, United States and to both quality and quantity, though quality from key areas in Canada was New Zealand suppliers and include bittersweet apples from France and highly variable and in some cases below long term averages. The average New Zealand and culinary apples from Italy and Washington State. Purchases booked 2015 and 2016 barley crop prices were comparable to historical and commitments are denominated in Euros for European apples, US Dollars long term averages. There has been a long-term trend of declining acres for United States apples and New Zealand Dollars for the New Zealand and production in North America against relatively stable malt demand. The apples. There is limited availability of some of these apple varieties, and Company purchased most of the malt used in the production of its beer many outside factors, including weather conditions, growers rotating from from two suppliers during 2016. The Company currently has a multi-year apples to other crops, competitor demand, government regulation and contract with one of its suppliers and a one year agreement with the other legislation affecting agriculture, could affect both price and supply. The supplier. The Company also believes that there are other malt suppliers 2016 apple crops in Europe, the United States and New Zealand were available that are capable of supplying its needs. consistent with historical long term averages. The Company has entered into contracts to cover its expected needs for 2017 and expects to realize Hops. The Company uses Noble hop varieties for many of its Samuel full delivery against these contracts. Adams beers and also uses hops grown in the United States, England, and New Zealand. Noble hops are grown in several specific areas recognized The Company purchased and opened its cidery at the Orchard in 2015. for growing hops with superior taste and aroma properties. These include The Company expects to use the apple varieties harvested at the Orchard Hallertau-Hallertauer, Tettnang-Tettnanger, Hersbrucker and Spalt-Spalter to experiment and develop new hard ciders and for resale to customers. from Germany and Saaz from the Czech Republic. The United States The Company may also use the apples harvested at the Orchard in small hops, grown primarily in the Pacific Northwest, namely Cascade, Simcoe®, quantities in the Company’s current hard ciders, but, given the current Centennial, Chinook, Citra®, Amarillo®, and Mosaic® are used in certain volume and varieties of apples grown at the Orchard, such use is likely Company ales and lagers, as are the Southern Hemisphere hop varieties, to be insignificant. Galaxy and Nelson Sauvin. Traditional English hops, namely, East Kent Other Ingredients. The Company maintains competitive sources for most Goldings and Fuggles, are also used in certain Company ales. Other hop of the other ingredients used in the production of its beverages. sources and varieties including new experimental varieties such as HBC 566 and HBC 682 are also tested from time to time and used in certain beers. Packaging Materials. The Company maintains competitive sources for the supply of certain packaging materials, such as shipping cases and glass. The European hop crop harvested in 2016 was well above historical long The Company enters into limited-term supply agreements with certain term averages with regards to both quality and quantity due to favorable vendors in order to receive preferential pricing. In 2016, cans, crowns, six temperatures and precipitation. The United States hop crop harvested in pack carriers and labels were each supplied by a single source; however, 2016 was consistent with historical long term averages with regards to the Company believes that alternative suppliers are available. quality, with an increase in overall quantity driven by expansion of planted acres in recent years. However, the demand for certain hops grown in the The Company initiates bottle deposits in some states and reuses glass United States has risen dramatically due to the success and proliferation bottles that are returned pursuant to certain state bottle recycling laws. of craft brewers and the popularity of beer styles that include hop varieties The Company derives some economic benefit from its reuse of returned grown in the United States, with the result that prices continue to rise glass bottles. The cost associated with reusing the glass varies based for both spot purchases and forward contract pricing and occasionally on the costs of collection, sorting and handling, including arrangements certain United States hops are in tight supply until the next crop or beyond. with retailers, Distributors and dealers in recycled products. There is no guarantee that the current economics relating to the use of returned glass The Company enters into purchase commitments with eight primary hop will continue or that the Company will continue to reuse returnable bottles. dealers, based on the Company’s projected future volumes and brewing needs. The dealers either have the hops that are committed or will contract with farmers to meet the Company’s needs. The contracts with the hop Quality Assurance dealers are denominated in Euros for the German and Czech Republic hops, in Pounds Sterling for the English hops, US Dollars for United States As of December 31, 2016, the Company employed over fifteen brew hops and New Zealand Dollars for the New Zealand hops. The Company masters to monitor the Company’s brewing operations and control the does not currently hedge its forward currency commitments. production of its beers, hard ciders and hard seltzers. Extensive tests, tastings and evaluations are typically required to ensure that each batch The Company expects to realize full delivery on European, United States of the Company’s beers, hard ciders and hard seltzers conforms to the and New Zealand hop contracts on the hop crop harvested in 2016. The Company’s standards. The Company has on-site quality control labs at Company attempts to maintain a one to two-year supply of essential hop each of its Samuel Adams Company-owned breweries, and supports the varieties on-hand in order to limit the risk of an unexpected reduction in smaller local breweries with additional centralized lab services. supply. With the exception of certain specialty products, the Company includes a The Company believes it has adequate inventory and commitments for clearly legible “freshness” code on every bottle, can and keg of its beers, all hop varieties. This belief is based on expected growth and beer style in order to ensure that its customers enjoy only the freshest products. mix, all of which could ultimately be significantly different from what is Boston Beer was the first American brewer to use this practice. currently planned. Variations to plan could result in hops shortages for specific beers or an excess of certain hops varieties.

4 BOSTON BEER COMPANY Form 10-K PART I Item 1 Business

Beer, Hard Cider and Hard Seltzer Production innovation among domestic craft brewers to remain strong, as craft brewers experienced their twelfth successive year of growth in 2016 and there were Strategy many new startups. The Company estimates there are over 6,500 craft During 2016, the Company brewed, fermented and packaged over 95% of breweries in operation or in the planning stages, up from approximately its volume at breweries owned by the Company. The Company made capital 1,409 operating craft breweries in 2006. Also, established craft breweries investments in 2016 of approximately $49.9 million. These investments are building more capacity, expanding geographically, and adding more were made mostly in the Company’s breweries to drive efficiencies and SKUs and styles, as Distributors and retailers are promoting and making cost reductions, support product innovation and future growth. The more shelf space available for more craft beer brands. Company expects to invest between $40 million and $60 million in 2017, Imported beers, such as Corona®, Heineken® and Modelo Especial®, which is highly dependent on future volume and mix estimates and the continue to compete aggressively in the United States and have gained capital investments to meet those volume estimates. The actual amount market share over the last ten years. Heineken and Constellation Brands spent may well be different from these estimates. (owner of the United States Distribution rights to Corona and Modelo The Company also engages in various product development activities. Especial) may have substantially greater financial resources, marketing Such activities include researching market needs and competitive products, strength and distribution networks than the Company has. The two largest and sample brewing and market taste testing. brewers in the United States, MillerCoors and AB InBev, participate actively in the Better Beer category both through importing and distributing foreign The Pennsylvania Brewery and the Cincinnati Brewery produce most of the brands that compete in the Better Beer category, and also with their own Company’s shipment volume. The Pennsylvania Brewery is the Company’s domestic specialty beers, either by developing new brands or by acquiring, largest brewery and the Cincinnati Brewery is the primary brewery for the in whole or part, existing craft breweries. In addition, Miller Coors’ Tenth production of most of the Company’s specialty and lower volume products. and Blake and AB InBev’s High End Division were formed as business The Boston Brewery’s production is mainly for developing new types of units headquartered in the United States that are focused exclusively on innovative and traditional beers and brewing and packaging beers for competing in the Better Beer market. retail sales on site and in the local market area. During the last few years, there were numerous acquisitions in the beer The Company’s Angry Orchard Innovation Cider House located at the industry with the largest being AB InBev’s $107 billion purchase of SAB Orchard in Walden, New York, opened in November 2015 and its production Miller and the related sale by SAB Miller to MolsonCoors of its 58% share of is mainly for developing new types of innovative hard ciders and fermenting the MillerCoors joint venture with MolsonCoors. There were also numerous and packaging ciders for retail sales on site and in the local market area. announcements of acquisitions of or investments in craft brewers by larger The A&S Brewing breweries include the Angel City Brewery, Concrete breweries, private equity and other investors. The most significant include Beach Brewery and Coney Island Brewery. The production at the A&S Heineken’s acquisition of a 50% interest in Lagunitas Brewing Company Brewing breweries is mainly for developing innovative and traditional for approximately $500 million, Constellation Brands’ acquisition of Ballast beers and supporting draft accounts in the respective local market areas Point Brewing & Spirits for approximately $1 billion, AB InBev’s purchase and providing for on-premise consumption of its beers at its beer halls. of multiple craft breweries, including Elysian Brewing Company, Golden Road Brewing, Four Peaks Brewing Company, Breckenridge Brewing, The Company currently has a brewing services agreement with subsidiaries Devils Backbone and Karbach and MillerCoors’ purchase of multiple of City Brewing Company, LLC, to produce its products at facilities in craft breweries, including Hop Valley Brewing, Saint Archer Brewery and Latrobe, Pennsylvania and Memphis, Tennessee. The Company carefully Revolver Brewing. Pabst Brewing Company acquired an ownership interest selects breweries and packaging facilities owned by others with (i) the in and entered into an exclusive agreement to distribute nationally Small capability of utilizing traditional brewing, fermenting and finishing methods Town Brewery’s brands, including Not Your Fathers Hard Root Beer®, and and (ii) first-rate quality control capabilities throughout the process. Under entered into an agreement to distribute various United States cider brands its brewing and packaging arrangements with third parties, the Company of C&C Group PLC, including ‘Woodchuck’, ‘Magners’ and ‘Hornsby’s.’ is charged a service fee based on units produced at each of the facilities AB InBev also acquired Spiked Seltzer, a previously independent hard and bears the costs of raw materials, risk, excise taxes and deposits for seltzer company. pallets and kegs and specialized equipment required to produce and package the Company’s beverages. The Company’s products also compete with other alcoholic beverages for drinker attention and consumption and the pace of innovation in The Company believes that it has alternatives available to it, in the event the categories in which the Company competes is increasing. In recent that production at any of its locations is interrupted, although severe years, wine and spirits have been competing more directly with beers. interruptions at the Pennsylvania Brewery would be problematic, especially The Company monitors such activity and attempts to develop strategies in seasonal peak periods. In addition, the Company may not be able to which benefit from the drinker’s interest in trading up, in order to position maintain its current economics if interruptions were to occur, and could its beers and hard ciders competitively with wine and spirits. face significant delays in starting up replacement production locations. Potential interruptions at breweries include labor issues, governmental The Company competes with other beer and alcoholic beverage companies actions, quality issues, contractual disputes, machinery failures, operational within a three-tier distribution system. The Company competes for a share shut downs, or natural or unavoidable catastrophes. Also, as the brewing of the Distributor’s attention, time and selling efforts. In retail establishments, industry has consolidated and the Company has grown, the capacity the Company competes for shelf, cold box and tap space. From a drinker and willingness of breweries owned by others where the Company could perspective, competition exists for brand acceptance and loyalty. The produce some of its beers, hard ciders and hard seltzers, if necessary, principal factors of competition in the Better Beer segment of the beer has become a more significant concern. The Company would work with industry include product quality and taste, brand advertising and imagery, its contract brewers to attempt to minimize any potential disruptions. trade and drinker promotions, pricing, packaging and the development of new products. The Company distributes its products through independent Distributors Competition who also distribute competitors’ products. Certain brewers have contracts with their Distributors that impose requirements on the Distributors that are The Better Beer category within the United States beer market is highly intended to maximize the Distributors’ attention, time and selling efforts competitive due to the increasing number of craft brewers, imported beers on that brewer’s products. These contracts generally result in increased with similar pricing and target drinkers, and efforts by large domestic competition among brewers as the contracts may affect the manner in brewers to enter this category. The Company anticipates competition and

BOSTON BEER COMPANY Form 10-K 5 PART I Item 1 Business

which a Distributor allocates selling effort and investment to the brands The Company’s Angry Orchard product line competes within the hard cider included in its portfolio. The Company closely monitors these and other category. This category is small and highly competitive and includes large trends in its Distributor network and works to develop programs and international and domestic competitors, as well as many small regional and tactics intended to best position its products in the market. local hard cider companies. Hard ciders are typically priced competitively with Better Beers and may compete for drinkers with beer, wine, spirits, The Company has certain competitive advantages over the regional craft or FMBs. Some of these competitors include C&C Group PLC under the brewers, including a long history of awards for product quality, greater brand names ‘Woodchuck’, ‘Magners’ and ‘Hornsby’s’; Heineken under available resources and the ability to distribute and promote its products the brand names ‘Strongbow’; AB InBev under ‘Michelob Ultra Cider’ on a more cost-effective basis. Additionally, the Company believes it has and ‘Stella Cidre’ and MillerCoors under the brand names ‘Smith and competitive advantages over imported beers, including lower transportation Forge’ and ‘Crispin Cider’. costs, higher product quality, a lack of import charges and superior product freshness. The Company’s Coney Island Hard Sodas and Truly Spiked & Sparkling beverages compete within the hard soda and hard seltzer categories, The Company’s Twisted Tea product line competes primarily within the FMB respectively. These categories are small, in their early stages of development, category of the beer industry. FMBs, such as Twisted Tea, Smirnoff Ice®, ® ® ® highly competitive and include large international and domestic competitors. Mike’s Hard Lemonade , Bud Light Lime Ritas, and Redds Apple Ale are Hard sodas and hard seltzers are typically priced competitively with Better flavored malt beverages that are typically priced competitively with Better Beers and may compete for drinkers with beer, wine, spirits, or FMBs. Some Beers. This category is highly competitive due to, among other factors, of these competitors include Pabst under ‘Not Your Fathers’; ABInbev under the presence of large brewers and spirits companies in the category, the ‘Best Damn’ and ‘Spiked Seltzer’; Miller Coors under ‘Henry Weinhard’; advertising of malt-based spirits brands in channels not available to the Mikes Hard Lemonade under ‘White Claw’ and Diageo under “Smirnoff”. parent brands and a fast pace of product innovation.

Regulation and Taxation

The alcoholic beverage industry is regulated by federal, state and local barrel, on hard cider (with alcohol by volume of 7% or less) is $0.226 per governments. These regulations govern the production, sale and distribution gallon, on hard cider (with non-qualifying fermentable fruits) is $1.07 per of alcoholic beverages, including permitting, licensing, marketing and gallon, and on artificially carbonated wine (hard cider with high CO2 levels) advertising. To operate its production facilities, the Company must obtain is $3.30 per gallon. States levy excise taxes at varying rates based on and maintain numerous permits, licenses and approvals from various the type of beverage and alcohol content. Failure by the Company to governmental agencies, including but not limited to, the Alcohol and comply with applicable federal, state or local laws and regulations could Tobacco Tax and Trade Bureau, the Food and Drug Administration, state result in higher taxes, penalties, fees and suspension or revocation of alcohol regulatory agencies and state and federal environmental agencies. permits, licenses or approvals. While there can be no assurance that any such regulatory action would not have a material adverse effect upon Governmental entities may levy various taxes, license fees and other similar the Company or its operating results, the Company is not aware of any charges and may require bonds to ensure compliance with applicable infraction affecting any of its licenses or permits that would materially laws and regulations. The federal excise tax on malt beverages is $18 per impact its ability to continue its current operations.

Trademarks

The Company has obtained trademark registrations with the United pending in various foreign countries. The Company regards its Samuel States Patent and Trademark Office for over 215 trademarks, including Adams family of trademarks and other trademarks as having substantial Samuel Adams®, Sam Adams®, Samuel Adams Boston Lager®, Samuel value and as being an important factor in the marketing of its products. Adams Utopias®, Samuel Adams Rebel®, Samuel Adams Brewing the The Company is not aware of any trademark infringements that could American Dream®, Angry Orchard®, Twisted Tea®, The Traveler Beer Co.®, materially affect its current business or any prior claim to the trademarks Coney Island®, Angel City Brewery®, and Concrete Beach®. It also has a that would prevent the Company from using such trademarks in its number of common law marks, including Infinium™ and Truly Spiked & business. The Company’s policy is to pursue registration of its marks Sparkling™. The Samuel Adams trademark, the Samuel Adams Boston whenever appropriate and to oppose infringements of its marks through Lager trademark, the Angry Orchard trademark, the Twisted Tea trademark available enforcement actions. and other Company trademarks are also registered or have registrations

Environmental, Health and Safety Regulations and Operating Considerations

The Company’s operations are subject to a variety of extensive and changing As part of its efforts to be environmentally friendly, the Company has reused federal, state and local environmental and occupational health and safety its glass bottles returned from certain states that have bottle deposit laws, regulations and ordinances that govern activities or operations bills. The Company believes that it benefits economically from washing that may have adverse effects on human health or the environment. and reusing these bottles, which result in a lower cost than purchasing Environmental laws, regulations or ordinances may impose liability for new glass, and that it benefits the environment by the reduction in landfill the cost of remediation of, and for certain damages resulting from, sites usage, the reduction of usage of raw materials and the lower utility costs of past releases of hazardous materials. The Company believes that it for reusing bottles versus producing new bottles. The economics of using currently conducts, and in the past has conducted, its activities and recycled glass varies based on the cost of collection, sorting and handling, operations in substantial compliance with applicable environmental laws, and may be affected by local regulation, and retailer, Distributor and glass and believes that any costs arising from existing environmental laws will dealer behavior. There is no guarantee that the current economics of using not have a material adverse effect on the Company’s financial condition returned glass will continue, or that the Company will continue its current or results of operations. used glass practices.

6 BOSTON BEER COMPANY Form 10-K PART I Item 1A Risk Factors

The Company has adopted various policies and procedures intended to requirements might not be adopted, compliance with which might have a ensure that its facilities meet occupational health and safety requirements. material, adverse financial effect on the Company and its operating results, The Company believes that it currently is in compliance with applicable or that such policies and procedures will be consistently followed and be requirements and will continue to endeavor to remain in compliance. sufficient to prevent serious accidents. There can be no assurances, however, that new and more restrictive

Employees

As of December 31, 2016, the Company employed 1,505 people, of which one year of December 31, 2016. The Company believes it maintains a 99 were covered by collective bargaining agreements at the Cincinnati good working relationship with all three labor unions and has no reason to Brewery. The collective bargaining agreements involve three labor unions, believe that the good working relationship will not continue. The Company with two contracts expiring in 2017 and one expiring in 2020. 91 employees has experienced no work stoppages, or threatened work stoppages, and were covered under collective bargaining agreements set to expire within believes that its employee relations are good.

Other

The Company submitted the Section 12(a) CEO Certification to the New Company makes available free of charge copies of its Annual Report on York Stock Exchange in accordance with the requirements of Section 303A Form 10-K, as well as other reports required to be filed by Section 13(a) or of the NYSE Listed Company Manual. This Annual Report on Form 10-K 15(d) of the Securities Exchange Act of 1934, on the Company’s website contains at Exhibits 31.1 and 31.2 the certifications of the Chief Executive at www.bostonbeer.com, or upon written request to Investor Relations, Officer and Chief Financial Officer, respectively, in accordance with the The Boston Beer Company, Inc., One Design Center Place, Suite 850, requirements of Section 302 of the Sarbanes-Oxley Act of 2002. The Boston, Massachusetts 02210.

ITEM 1A. Risk Factors

In addition to the other information in this Annual Report on Form 10-K, geographically, adding more SKUs and styles as Distributors and retailers the risks described below should be carefully considered before deciding are promoting and making more shelf space available for more craft beer to invest in shares of the Company’s Class A Common Stock. These are brands. The continued growth in the sales of craft-brewed domestic risks and uncertainties that management believes are most likely to be beers and in imported beers is expected to increase the competition in material and therefore are most important for an investor to consider. the Better Beer category within the United States beer market and, as a The Company’s business operations and results may also be adversely result, prices and market share of the Company’s products may fluctuate affected by additional risks and uncertainties not presently known to it, or and possibly decline. which it currently deems immaterial, or which are similar to those faced by other companies in its industry or business in general. If any of the The Company’s products compete generally with other alcoholic beverages. following risks or uncertainties actually occurs, the Company’s business, The Company competes with other beer and beverage companies not financial condition, results of operations or cash flows would likely suffer. only for drinker acceptance and loyalty, but also for shelf, cold box and tap In that event, the market price of the Company’s Class A Common Stock space in retail establishments and for marketing focus by the Company’s could decline. Distributors and their customers, all of which also distribute and sell other beers and alcoholic beverage products. Many of the Company’s competitors, including AB InBev, MillerCoors, Heineken and Constellation The Company Faces Substantial Brands, have substantially greater financial resources, marketing strength and distribution networks than the Company. Moreover, the introduction of Competition. new products by competitors that compete directly with the Company’s The Better Beer category within the United States beer market is highly products or that diminish the importance of the Company’s products to competitive, due to the increasing number of craft brewers with similar retailers or Distributors may have a material adverse effect on the Company’s pricing and target drinkers and gains in market share achieved by domestic business and financial results. specialty beers and imported beers, and more recently the acquisition of Further, the beer industry has seen continued consolidation among craft brewers by the four largest market competitors, AB InBev, MillerCoors, brewers in order to take advantage of cost savings opportunities for Constellation and Heineken. The Company faces strong competition from supplies, distribution and operations. Illustrative of this consolidation is AB these brewers as they acquire craft brewers, or introduce new domestic InBev’s $107 billion purchase of SAB Miller and the related sale by SAB specialty brands to many markets and expand their efforts behind existing Miller to MolsonCoors of its 58% share of the MillerCoors joint venture brands. Imported beers, such as Corona®, Heineken® and Modelo Especial®, with MolsonCoors, as well as Heineken’s acquisition of a 50% interest in also continue to compete aggressively in the United States beer market. Lagunitas Brewing Company for approximately $500 million and Constellation The Company anticipates competition among domestic craft brewers will Brand’s acquisition of Ballast Point Brewing & Spirits for approximately remain strong, as craft brewers experienced their twelfth successive year of $1 billion. Also, in the last few years, both AB Inbev and MillerCoors have growth in 2016 and there were many new startups. The Company estimates purchased multiple regional craft breweries with the intention to expand there are now over 6,500 craft breweries in operation or in the planning the capacity and distribution of these breweries. Due to the increased stages up from 1,409 operating craft breweries in 2006. Also, existing leverage that these combined operations will have in distribution and craft breweries are building more capacity, local tap rooms, expanding sales and marketing expenses, the costs to the Company of competing

BOSTON BEER COMPANY Form 10-K 7 PART I Item 1A Risk Factors

could increase. The potential also exists for these large competitors to The Company May Not Be Able to Manage increase their influence with their Distributors, making it difficult for smaller brewers to maintain their market presence or enter new markets. The Demand for Its Products. continuing consolidation could also reduce the contract brewing capacity The Company’s future growth may also be limited by its ability to meet that is available to the Company. These potential increases in the number production goals and/or targets at the Company’s owned breweries, and availability of competing brands, the costs to compete, reductions disruption or operating performance issues at the Company’s owned in contract brewing capacity and decreases in distribution support and breweries, limits on the availability of suitable production capacity at third opportunities may have a material adverse effect on the Company’s party-owned breweries, and the Company’s ability to enter into brewing business and financial results. contracts with third party-owned breweries on commercially acceptable terms, and its ability to obtain sufficient quantities of certain ingredients and packaging materials, such as hops, malt, cider ingredients, bottles There Is No Assurance that the Company and cans, from suppliers. Can Reverse its recent Sales declines and Return to Periods of Growth or, Conversely, The Company has Significantly Increased its Adapt to the Challenges of a Lower-Growth Product Offerings and Distribution Footprint, Environment. which Increases Complexity and Could In recent periods, the Company has experienced a decline in the demand Adversely Affect the Company’s Results. for its products. The Company’s ability to reverse these trends and return to periods of growth may be limited, by its ability to increase its market The Company has significantly increased the number of its commercially share in domestic and international markets, including those markets available beers, FMBs, hard ciders and hard seltzers that it produces. Since that may be dominated by one or more regional or local craft brewers, 2010, the Company has introduced many new beers, ciders and hard and by the increasing number of competitors, the emergence of local tap seltzers under the Samuel Adams, Angry Orchard, Twisted Tea and Truly rooms as a significant on premise channel, and drinker interest in new or Spiked & Sparkling brand names. A&S Brewing currently has four brands, local products, rather than established brands. The development of new including three small breweries and retail beer halls where beer is sold and products by the Company may lead to reduced sales of the Company’s consumed on-premise. In 2015, the Company began national distribution other products, including its flagship Samuel Adams Boston Lager. of certain styles of the Traveler Beer brand and the Coney Island beer Reduced sales, among other factors, could lead to lower brewery utilization, brand, including Coney Island Hard Root Beer. Also in November 2015, lower funds available to invest in brand support and reduced profitability, the Company opened the Angry Orchard Innovation Cider House at its and these challenges may require a different mix and level of marketing apple orchard located in Walden, New York, where hard cider is fermented, investments to stabilize and grow volumes. While the Company believes sold and consumed on-premise. In 2016, the Company began national that a combination of innovation, brand messaging and investment and distribution of certain styles of the Truly Spiked & Sparkling brand. These sales execution can lead to increased demand, there is no guarantee that additional brands and locations, along with the increases in demand for the Company’s actions will be successful in maintaining the Company’s certain existing brands, have added to the complexity of the Company’s historical levels of profitability. product development process, as well as its brewing, fermenting, packaging, marketing and selling processes. The Company does not have significant experience with managing this number of brands and products and has Turnover in Company Leadership or Other limited experience with integrating acquired brands or operating small production facilities and retail operations. There can be no assurance Key Positions May Lead to Loss of Key that the Company will effectively manage such increased complexity, Knowledge or Capability and Adversely without experiencing operating inefficiencies or control deficiencies. Such Impact Company Performance. inefficiencies or deficiencies could have a material adverse effect on the Company’s business and financial results. In 2016 the Company made changes in several senior management positions, including hiring a new Chief Financial Officer, Chief Marketing Officer and senior supply chain officer to succeed retiring executives. In early 2017, Unexpected Events at Company-Owned the President and Chief Executive Officer, Martin Roper, announced his plans to retire in 2018 after leading the Company for more than 17 years. Production Facilities, Reduced Availability The Board of Directors has created a search committee and retained Korn of Breweries Owned by Others, Increased Ferry to assist in identifying and evaluating the best candidates to succeed Complexity of the Company’s Business, or Roper as CEO. The Company may well experience further changes in key leadership or key positions in the future. The departure of key leadership the Expansion Costs of the Company-Owned personnel, especially a long-serving chief executive officer, can take Breweries Could Have A Material Adverse from the Company significant knowledge and experience. This loss of Effect on the Company’s Operations or knowledge and experience can be mitigated through successful hiring and transition, but there can be no assurance that the Company will be Financial Results. successful in such efforts. Attracting, retaining, integrating and developing Prior to 2008, the Company pursued a production strategy that combined high performance individuals in key roles is a core component of the the capacity at its Cincinnati Brewery, which was acquired in 1997, Company’s strategy for addressing its business opportunities. Attracting with significant production arrangements at breweries owned by third and retaining qualified senior leadership may be more challenging under parties. The brewing services arrangements with breweries owned by adverse business conditions, such as the declining growth environment others allowed the Company to utilize their excess capacity, providing now facing the Company. Failure to attract and retain the right talent, or the Company with production flexibility, as well as cost advantages over to smoothly manage the transition of responsibilities resulting from such its competitors, while maintaining full control over the brewing process turnover, would affect the Company’s ability to meet its challenges and may for its beers. The Company purchased the Pennsylvania Brewery in June cause the Company to miss performance objectives or financial targets. 2008. As a result of that acquisition and the subsequent expansion of the Pennsylvania Brewery’s capacity, the volume of core brands brewed at Company-owned breweries increased, and currently over 95% of the Company’s volume is brewed and packaged at breweries that it owns.

8 BOSTON BEER COMPANY Form 10-K PART I Item 1A Risk Factors

In 2016, the Company brewed its flagship beer, Samuel Adams Boston The Company Is Dependent on Its Lager, at each of its three Samuel Adams breweries, but at any particular time it may rely on only one brewery for its products other than Samuel Distributors. Adams Boston Lager. The Company expects to continue to brew most all In the United States, where approximately 96% of its beer is sold, of its volume in 2017 at its Company-owned breweries. This reliance on its the Company sells most all of its alcohol beverages to independent own breweries exposes the Company to capacity constraints and risk of beer Distributors for distribution to retailers and, ultimately, to drinkers. disruption of supply, as these breweries are operating at or close to current Although the Company currently has arrangements with approximately 350 capacity in peak months. Management believes that it has alternatives Distributors, sustained growth will require it to maintain such relationships available to it, in the event that production at any of its brewing locations is and possibly enter into agreements with additional Distributors. Changes temporarily interrupted, although as volumes at the Pennsylvania Brewery in control or ownership within the current distribution network could lead increase, severe interruptions there would be problematic, particularly during to less support of the Company’s products. No assurance can be given peak season. In addition, if interruptions were to occur, the Company may that the Company will be able to maintain its current distribution network not be able to maintain its current economics and could face significant or secure additional Distributors on terms favorable to the Company. delays in starting replacement brewing locations. Potential interruptions at breweries include labor issues, governmental action, quality issues, Contributing to distribution risk is the fact that the Company’s distribution contractual disputes, machinery failures, operational shut downs or natural agreements are generally terminable by the Distributor on relatively short or unavoidable catastrophe. notice. While these distribution agreements contain provisions giving the Company enforcement and termination rights, some state laws prohibit The growth in the Company’s business and product complexity and the the Company from exercising these contractual rights. The Company’s expansion of the capacities and manpower at the Company’s breweries to ability to maintain its existing distribution arrangements may be adversely facilitate greater reliance on its owned breweries heighten the management affected by the fact that many of its Distributors are reliant on one of the challenges that the Company faces. In recent years, the Company has major beer producers for a large percentage of their revenue and, therefore, had product shortages and service issues and the Company’s supply they may be influenced by such producers. If the Company’s existing chain struggled under the increased volume and experienced increased distribution agreements are terminated, it may not be able to enter into operational and freight costs as it reacted. In response to these issues, new distribution agreements on substantially similar terms, which may the Company has significantly increased its packaging capabilities and result in an increase in the costs of distribution. tank capacity and added personnel to address these challenges. There can be no assurance that the Company will effectively manage such increasing complexity without experiencing future planning failures, The Company’s Freshest Beer Program operating inefficiencies, insufficient employee training, control deficiencies or other issues that could have a material adverse effect on the Company’s Could Adversely Impact the Company’s business and financial results. The prior growth of the Company, changes Business and Operating Results. in operating procedures and increased complexity have required significant In late 2010, the Company started the implementation of its Freshest capital investment. The Company to date has not seen operating cost Beer Program with domestic Distributors to reduce both the time and leverage from these increased volumes and there is no guarantee that it will. temperature the Company’s beers experience at Distributor warehouses The Company continues to avail itself of capacity at third-party breweries. before reaching the market. Historically, Distributors have carried three to During 2016, the Company brewed and/or packaged certain products five weeks of packaged inventory (usually at ambient temperatures) and under service contracts at facilities located in Latrobe, Pennsylvania and three to four weeks of draft inventory. The Company’s goal is to reduce this Memphis, Tennessee. In selecting third party breweries for brewing services warehouse time through better on-time service, forecasting, production arrangements, the Company carefully weighs a brewery’s capability of planning and cooperation with the Distributors. At December 31, 2016, utilizing traditional brewing, fermenting and finishing methods and its the Company had 159 Distributors, representing approximately 77% of quality control capabilities throughout the production process. To the extent its volume, participating in the program at various stages of inventory that the Company needs to avail itself of a third-party brewing services reduction. The Company has successfully reduced the inventories of arrangement, it exposes itself to higher than planned costs of operating participating Distributors by approximately two weeks, resulting in fresher under such contract arrangements than would apply at the Company- beer being delivered to retail. The Freshest Beer Program has resulted in owned breweries or an unexpected decline in the brewing capacity lower shipments of approximately 270,000, 87,000, and 103,000 case available to it, either of which could have a material adverse effect on the equivalents in 2016, 2015 and 2014 respectively as measured at the end Company’s business and financial results. The use of such third party of the year by evaluating the year on year inventory reduction from the facilities also creates higher logistical costs and uncertainty in the ability inventory levels that might otherwise have been expected. In 2015 and to deliver product to the Company’s customers efficiently and on time. 2016, the Company has been piloting a small group of distributors on a pure replenishment service model within our Freshest Beer Program, which As the brewing industry continues to consolidate and the Company has if successful would further reduce Distributor inventories. The ordering grown, the capacity and willingness of breweries owned by others where process has changed significantly for Distributors that participate in the the Company could brew some of its beers, if necessary, has become Freshest Beer Program and has resulted in a shorter period between order a more significant concern and, thus, there is no guarantee that the placement and shipment and posed much greater challenges for forecasting Company’s brewing needs will be uniformly met. The Company continues and production planning. Also, changes to the Distributor ordering process to work at its Company-owned breweries, and with its contract brewers has increased the complexity of the Company’s revenue recognition for to attempt to minimize any potential disruptions. Nevertheless, should an shipments to Distributors that participate in the Freshest Beer Program. interruption occur, the Company could experience temporary shortfalls in production and/or increased production and/or distribution costs and It is possible that the Freshest Beer Program may not ultimately be be required to make significant capital investments to secure alternative successful; that its costs of implementation may exceed the value realized; capacity for certain brands and packages, the combination of which could or that the outcome of such inventory reductions may prove detrimental have a material adverse effect on the Company’s business and financial to the Company’s business trends and ability to execute at retail. The results. A simultaneous interruption at several of the Company’s production Company may encounter unexpected problems with forecasting, accounting, locations or an unexpected interruption at one of the Company-owned production and Distributor cooperation. These issues may in the past breweries would likely cause significant disruption, increased costs and, have led and in the future could lead to shortages and out of stocks of potentially, lost sales. the Company’s products at the Distributor and retailer levels, result in increased costs, negatively impact Distributor relations, and/or delay the Company’s implementation of this program.

BOSTON BEER COMPANY Form 10-K 9 PART I Item 1A Risk Factors

The Company also fills orders from those of its Distributors who may Distributors. Since 2012, the Company has not experienced any shortage independently choose to build their inventories or run their inventories of apples. The Company has entered into contracts to cover its expected down. Such a change in Distributor inventories is unpredictable and can needs for 2017 and expects to realize full delivery against these contracts. lead to fluctuations in the Company’s quarterly or annual results. Except for the shortage of apples in 2012, the Company has not experienced material difficulties in obtaining timely delivery from its suppliers, although The Company is Dependent on Key the Company has had to pay significantly above historical prices to secure supplies when inventory and supply have been tight. The Company’s new Suppliers, Including Foreign Sources; Its product development can also be constrained by any limited availability of Dependence on Foreign Sources Creates certain ingredients. Growth rates higher than planned or the introduction Foreign Currency Exposure for the Company; of new products requiring special ingredients could create demand for ingredients greater than the Company can source. Although the Company The Company’s Use of Natural Ingredients believes that there are alternative sources available for some of the Creates Weather and Crop Reliability and ingredients and packaging materials, there can be no assurance that Excess/Shortage Inventory Exposure for the Company would be able to acquire such ingredients or packaging materials from substitute sources on a timely or cost effective basis, in the Company. the event that current suppliers could not adequately fulfill orders. The The Company purchases a substantial portion of the raw materials used loss or significant reduction in the capability of a supplier to support in the brewing of its products, including its malt, hops, barley and other the Company’s requirements could, in the short-term, adversely affect ingredients, from a limited number of foreign and domestic suppliers. The the Company’s business and financial results, until alternative supply Company purchased most of the malt used in the production of its beer arrangements were secured. from two suppliers during 2016. Nevertheless, the Company believes The Company’s contracts for certain hops and apples that are payable that there are other malt vendors available that are capable of supplying in Euros, Pounds Sterling and New Zealand dollars, and therefore, the part of its needs. The Company is exposed to the quality of the barley Company is subject to the risk that the Euro, Pound or New Zealand crop each year, and significant failure of a crop would adversely affect dollar may fluctuate adversely against the U.S. dollar. The Company has, the Company’s costs. as a practice, not hedged this exposure, although this practice is regularly The Company predominantly uses Noble hops for its Samuel Adams lagers. reviewed. Significant adverse fluctuations in foreign currency exchange Noble hops are varieties from several specific growing areas recognized rates may have a material adverse effect on the Company’s business and for superior taste and aroma properties and include Hallertau-Hallertauer, financial results. The cost of hops has increased in recent years due to the Tettnang-Tettnanger, Hersbruck-Hersbrucker and Spalt-Spalter from rising market price of hops and exchange rate changes. The continuation Germany and Saaz-Saazer from the Czech Republic. Noble hops are of these trends will impact the Company’s product cost and potentially the rare and more expensive than most other varieties of hops. Traditional Company’s ability to meet the demand for its beers. The Company buys English hops, namely, East Kent Goldings and English Fuggles, and/or some other ingredients and capital equipment from foreign suppliers for United States hops are used in most of the Company’s ales. The demand which the Company also carries exposure to foreign exchange rate changes. for hops grown in the United States has grown due to the success and The Company’s accounting policy for hops inventory and purchase growth of craft brewers and the popularity of beer styles that include commitments is to recognize a loss by establishing a reserve to the extent hops grown in the United States. Certain United States hops are in tight inventory levels and commitments exceed management’s expected future supply and prices have risen for both spot purchases and forward contract usage. The computation of the excess inventory requires management pricing, accordingly. The Company enters into purchase commitments to make certain assumptions regarding future sales growth, product with several hops dealers, based on the Company’s projected future mix, cancellation costs and supply, among others. Actual results may volumes and brewing needs. The dealers then contract with farmers to differ materially from management’s estimates. The Company continues meet the Company’s needs. However, the performance and availability to manage inventory levels and purchase commitments in an effort to of the hops, as with any agricultural product, may be materially adversely maximize utilization of hops on hand and hops under commitment. affected by factors such as adverse weather or pests and there is no However, changes in management’s assumptions regarding future sales guarantee the contracts will be fulfilled completely. Further, the use of growth, product mix and hops market conditions could result in future fertilizers and pesticides that do not conform to United States regulations, material losses. the imposition of export/import restrictions (such as increased tariffs and duties) and changes in currency exchange rates could result in increased prices or shortages of acceptable hops. An Increase in Packaging Costs Could Harm The Company attempts to maintain up to a two-year supply of essential the Company’s Financial Results. hop varieties on-hand in order to limit the risk of an unexpected reduction in supply. The Company stores its hops in multiple cold storage warehouses The Company maintains competitive sources for the supply of certain to minimize the impact of a catastrophe at a single site. Hops and malt packaging materials, such as shipping cases and glass. The Company are agricultural products and therefore many outside factors, including enters into limited-term supply agreements with certain vendors in order weather conditions, farmers rotating out of hops or barley to other crops, to receive preferential pricing. In 2016, cans, crowns, six pack carriers and government regulations and legislation affecting agriculture, could affect labels were each supplied by single sources. Although the Company believes both price and supply. that alternative suppliers are available, the loss of any of the Company’s packaging materials suppliers could, in the short-term, adversely affect The Company uses special varieties of apples in its ciders that it believes are the Company’s results of operations, cash flows and financial position until important for the ciders’ flavor profile. These apples are sourced primarily alternative supply arrangements were secured. Additionally, there has been from European, United States and New Zealand suppliers and include acquisition and consolidation activity in several of the packaging supplier bittersweet apples from France and New Zealand and culinary apples from networks which could potentially lead to disruption in supply and changes in Italy and Washington state. There is limited availability of these apples and economics. If packaging costs continue to increase, there is no guarantee many outside factors, including weather conditions, farmers rotating from that such costs can be fully passed along to drinkers through increased apples to other crops, government regulations and legislation affecting prices. The Company has entered into long-term supply agreements for agriculture, could affect both price and supply. In 2012, the Company certain packaging materials that have shielded it from some cost increases. experienced shortages of apples, primarily due to growth in excess of These contracts have varying lengths and terms and there is no guarantee that planned, that impacted the timing of shipments of its hard ciders to that the economics of these contracts can be replicated when renewed.

10 BOSTON BEER COMPANY Form 10-K PART I Item 1A Risk Factors

The Company’s inability to preserve the current economics on renewal Changes in Tax, Environmental and could expose the Company to significant cost increases in future years. Some of these contracts require the Company to make commitments Other Regulations or Failure to Comply on minimum volume of purchases based on Company forecasts. If the with Existing Licensing, Trade or Other Company’s needs differ significantly from its forecasts, the Company would Regulations Could Have a Material Adverse likely incur storage costs for excess production or contractual penalties that might be significant to Company financial results. Effect on the Company’s Financial Condition. The Company’s business is highly regulated by federal, state and local laws The Company initiates bottle deposits in some states and reuses glass and regulations regarding such matters as licensing requirements, trade and bottles that are returned pursuant to certain state bottle recycling laws. pricing practices, labeling, advertising, promotion and marketing practices, The cost associated with reusing the glass varies. The Company believes relationships with Distributors, environmental impact of operations and other that it benefits economically from cleaning and reusing these bottles, which matters. These laws and regulations are subject to frequent reevaluation, result in a lower cost than purchasing new glass, and that it benefits the varying interpretations and political debate, and inquiries from governmental environment by the reduction in landfill usage, the reduction of usage of raw regulators charged with their enforcement. Failure to comply with existing materials and the lower utility costs for reusing bottles versus producing laws and regulations relating to the Company’s operations or any revisions to new bottles. The economics of using recycled glass varies based on such laws and regulations or the failure to pay taxes or other fees imposed the cost of collection, sorting and handling, retailer, distributor and glass on the Company’s operations and results could result in the loss, revocation dealer behavior, the availability of equipment and service providers that or suspension of the Company’s licenses, permits or approvals, and could will clean bottles for reuse, and may be adversely affected by changes have a material adverse effect on the Company’s business, financial condition in state regulation. There is no guarantee that the current economics of and results of operations. Changes in Federal and other tax rates could using returned glass will continue, or that the Company will continue its have significant effect on the Company’s financial results. current used glass practices.

An Increase in Energy Costs Could Harm the Changes in Public Attitudes and Drinker Company’s Financial Results. Tastes Could Harm the Company’s Business. Regulatory Changes in Response to Public In the last five years, the Company has experienced significant variation in direct and indirect energy costs, and energy costs could change Attitudes Could Adversely Affect the unpredictably. Increased energy costs would result in higher transportation, Company’s Business. freight and other operating costs, including increases in the cost of The alcoholic beverage industry has become the subject of considerable ingredients and supplies. The Company’s future operating expenses and societal and political attention in recent years, due to increasing public margins could be dependent on its ability to manage the impact of such concern over alcohol-related social problems, including driving under the cost increases. If energy costs increase, there is no guarantee that such influence, underage drinking and health consequences from the misuse costs can be fully passed along to drinkers through increased prices. of alcohol, including alcoholism. As an outgrowth of these concerns, the possibility exists that advertising by beer producers could be restricted, that additional cautionary labeling or packaging requirements might be The Company’s Advertising and Promotional imposed, that further restrictions on the sale of alcohol might be imposed Investments May Affect the Company’s or that there may be renewed efforts to impose increased excise or other Financial Results but Not be Effective. taxes on beer sold in the United States. The Company has made, and expects to continue to make, significant The domestic beer industry, other than Better Beers, has experienced a advertising and promotional expenditures to enhance its brands, even slight decline in shipments over the last ten years. The Company believes though these expenditures may adversely affect the Company’s results of that this slower growth is due to both declining alcohol consumption per operations in a particular quarter or even for the full year, and may not result person in the population and increased competition from wine and spirits in increased sales. Variations in the levels of advertising and promotional companies. If beer consumption in general were to come into disfavor expenditures have in the past caused, and are expected in the future to among domestic drinkers, or if the domestic beer industry were subjected continue to cause, variability in the Company’s quarterly results of operations. to significant additional governmental regulations, the Company’s business While the Company attempts to invest only in effective advertising and could be materially adversely affected. promotional expenditures, it is difficult to correlate such investments with Certain states are considering or have passed laws and regulations that sales results, and there is no guarantee that the Company’s expenditures allow the sale and distribution of marijuana. It is possible that legal marijuana will be effective in building brand equity or growing long term sales. usage could adversely impact the demand for the Company’s products.

The Company’s Operations are Subject to Impact of Changes in Drinker Attitudes on Certain Operating Hazards Which Could Brand Equity and Inherent Risk of Reliance Result in Unexpected Costs or Product on the Company’s Founder in the Samuel Recalls That Could Harm the Company’s Adams® Brand Communications. Business. There is no guarantee that the brand equities that the Company has built in The Company’s operations are subject to certain hazards and liability risks its brands will continue to appeal to drinkers. Changes in drinker attitudes faced by all brewers, such as potential contamination of ingredients or or demands could adversely affect the strength of the Company’s brands products by bacteria or other external agents that may be wrongfully or and the revenue that is generated from that strength. It is possible that accidentally introduced into products or packaging, or defective packaging the Company could react to such changes and reposition its brands, but and handling. Such occurrences may create bad tasting beer, hard cider there is no certainty that the Company would be able to maintain volumes, or hard seltzer, or pose risk to the integrity and safety of the packaging. pricing power and profitability. It is also possible that marketing messages These could result in unexpected costs to the Company and, in the case or other actions taken by the Company could damage its brand equities, of a costly product recall, potentially serious damage to the Company’s as opposed to building them. If such damage were to occur, it would reputation for product quality, as well as product liability claims. likely have a negative effect on the financial condition of the Company.

BOSTON BEER COMPANY Form 10-K 11 PART I Item 1A Risk Factors

In addition to these inherent brand risks, the founder and Chairman of the The Company’s Operating Results and Company, C. James Koch, is an integral part of the Company’s Samuel Adams brand history, equity and current and potential future brand messaging Cash Flow May Be Adversely Affected by and the Company relies on the positive public perception of its founder. Unfavorable Economic and Financial Market The role of Mr. Koch as founder, brewer and leader of the Company is Conditions. emphasized as part of the Company’s brand communication and has appeal to some drinkers. If Mr. Koch were not available to the Company Volatility and uncertainty in the financial markets and economic conditions to continue his active role, his absence could negatively affect the strength may directly or indirectly affect the Company’s performance and operating of the Company’s messaging and, accordingly, the Company’s growth results in a variety of ways, including: (a) prices for energy and agricultural prospects. The Company and its brands may also be impacted if drinkers’ products may rise faster than current estimates, including increases views of Mr. Koch were to negatively change. If either of these were to resulting from currency fluctuations; (b) the Company’s key suppliers may occur, the Company might need to adapt its strategy for communicating not be able to fund their capital requirements, resulting in disruption in the its key messages regarding its traditional brewing processes, brewing supplies of the Company’s raw and packaging materials; (c) the credit risks heritage and quality. Any such change in the Company’s messaging strategy of the Company’s Distributors may increase; (d) the impact of currency might have a detrimental impact on the future growth of the Company. fluctuations on amounts owed to the Company by distributors that pay in foreign currencies; (e) the Company’s credit facility, or portion thereof, may become unavailable at a time when needed by the Company to meet There Is No Guarantee that the Company critical needs; (f) overall beer consumption may decline; or (g) drinkers of the Company’s beers may change their purchase preferences and Will not Face Litigation that Could Harm the frequency, which might result in sales declines. Company’s Business. While the Company has from time to time in the past been involved in material litigation, it is not currently a party to any pending or threatened The Company Relies Upon Complex litigation, the outcome of which would be expected to have a material Information Systems. adverse effect on its financial condition or the results of its operations. In The Company depends on information technology to be able to operate general, while the Company believes it conducts its business appropriately efficiently and interface with customers and suppliers, as well as maintain in accordance with laws, regulations and industry guidelines, claims, financial and accounting reporting accuracy to ensure compliance with all whether or not meritorious, could be asserted against the Company applicable laws. If the Company does not allocate and effectively manage that might adversely impact the Company’s results. See Item 3 — Legal the resources necessary to build and sustain the proper technology Proceedings below. infrastructure, the Company could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. The Class B Shareholder Has Significant The Company recognizes that many groups on a world-wide basis have Influence over the Company. experienced increases in cyber attacks and other hacking activity. The Company has dedicated internal and external resources to review and The Company’s Class A Common Stock is not entitled to any voting rights address such threats. However, as with all large information technology except for the right as a class to (1) approve certain mergers, charter systems, the Company’s systems could be penetrated by outside parties amendments and by-law amendments and (2) elect a minority of the intent on extracting confidential or proprietary information, corrupting directors of the Company. Although not as a matter of right, the Class A information, disrupting business processes, or engaging in the unauthorized stockholders have also been afforded the opportunity to vote on an advisory use of strategic information. Such unauthorized access could disrupt basis on executive compensation. Consequently, the election of a majority business operations and could result in the loss of assets or revenues, of the Company’s directors and all other matters requiring stockholder remediation costs or damage to the Company’s reputation, as well as approval are currently decided by C. James Koch, who is the founder and litigation against the Company by third parties adversely affected by the Chairman of the Company, as the holder of 100% of the voting rights to unauthorized access. Such events could have a material adverse effect the outstanding shares of the Company’s Class B Common Stock. As a on the Company’s business and financial results. The Company also result, Mr. Koch is able to exercise substantial influence over all matters relies on third parties for supply of software, software and data hosting requiring stockholder approval, including the composition of the board and telecommunications and networking, and is reliant on those third of directors, approval of equity-based and other executive compensation parties for the quality and integrity of these complex services. Failure by a and other significant corporate and governance matters, such as approval third party supplier could have material adverse effect on the Company’s of the Company’s independent registered public accounting firm. This ability to operate. could have the effect of delaying or preventing a change in control of the Company and makes most material transactions difficult or impossible to accomplish without the support of Mr. Koch. In addition, Mr. Koch could transfer some shares of the Class B Common Stock to others, which could impact the nature of the control currently held by him as the sole holder of the Class B Common Stock.

12 BOSTON BEER COMPANY Form 10-K PART I Item 4 Mine Safety Disclosures

ITEM 1B. Unresolved Staff Comments

The Company has not received any written comments from the staff of the Securities and Exchange Commission (the “SEC”) regarding the Company’s periodic or current reports that (1) the Company believes are material, (2) were issued not less than 180 days before the end of the Company’s 2016 fiscal year, and (3) remain unresolved.

ITEM 2. Properties

The Company maintains its principal corporate offices in approximately The Company owns approximately 62 acres of land in Walden, New York, 54,200 square feet of leased space located in Boston, Massachusetts, consisting of an apple orchard and certain buildings, including a small the term of which is set to expire in 2026. The Company also leases small cidery and tour center. The small cidery and tour center on this property offices in California and Vermont. consist of approximately 15,000 square feet of space. The Company maintains a brewery and tour center in Boston, Massachusetts The Company leases approximately 48,650 square feet of space in Los in approximately 43,000 square feet of leased space. The current term Angeles, California, which houses a small brewery, beer hall and tour of the lease for this facility will expire in 2019, although it has an option to center. The current term of the lease for this facility will expire in 2021. extend the term for an additional five years. The Company leases approximately 11,365 square feet of space in Miami, The Company owns approximately 76 acres of land in Breinigsville, Florida, which houses a small brewery, beer hall and tour center. The Pennsylvania, consisting of the two parcels on which the Company’s current term of the lease for this facility will expire in 2023. Pennsylvania Brewery is located. The buildings on this property consist of approximately 1 million square feet of brewery and warehouse space. The Company leases approximately 2,100 square feet of space within the retail section of MCU Park in Brooklyn, New York, which houses a small The Company owns approximately 10 acres of land in Cincinnati, Ohio, brewery and tasting room. The current term of the lease for this facility on which the Company’s Cincinnati Brewery is located, and leases, with will expire in 2019. an option to purchase, approximately 1 acre of land from the City of Cincinnati which abuts its property. The buildings on this property consist The Company believes that its facilities are adequate for its current needs of approximately 128,500 square feet of brewery and warehouse space. and that suitable additional space will be available on commercially acceptable terms as required.

ITEM 3. Legal Proceedings

The Company is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations.

ITEM 4. Mine Safety Disclosures

Not Applicable

BOSTON BEER COMPANY Form 10-K 13 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The graph set forth below shows the value of an investment of $100 on January 1, 2012 in each of the Company’s stock (“The Boston Beer Company, Inc.”), the Standard & Poor’s 500 Index (“S&P 500 Index”), the Standard & Poor’s 500 Beverage Index, which consists of producers of alcoholic and non-alcoholic beverages (“S&P 500 Beverages Index”) and a custom peer group which consists of Molson Coors Brewing Company and Craft Brewers Alliance, Inc. (formerly Redhook Ale Brewery, Inc.), the two remaining U.S. publicly-traded brewing companies (“Peer Group”), for the five years ending December 31, 2016. Total Return To Shareholders (Includes reinvestment of dividends)

ANNUAL RETURN PERCENTAGE Years Ending Company Name/Index 12/29/12 12/28/13 12/27/14 12/26/15 12/31/16 The Boston Beer Company, Inc. 22.49 82.06 22.16 -30.55 -17.31 S&P 500 Index 14.07 34.12 15.76 0.77 11.07 S&P 500 Beverages Index 7.16 22.48 19.04 10.52 1.77 Peer Group 1.17 36.24 37.43 25.24 6.10

INDEXED RETURNS Years Ending Base Period Company Name/Index 12/31/11 12/29/12 12/28/13 12/27/14 12/26/15 12/31/16 The Boston Beer Company, Inc. 100 122.49 223.01 272.42 189.20 156.46 S&P 500 Index 100 114.07 153.00 177.10 178.46 198.21 S&P 500 Beverages Index 100 107.16 131.25 156.24 172.68 175.74 Peer Group 100 101.17 137.83 189.42 237.22 251.68

Peer Group Companies Craft Brew Alliance Inc Molson Coors Brewing Co

COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN In $ 350 350

300 300

250 250

200 200

150 150

100 100

50 50

0 0 2011 2012 2013 2014 2015 2016 The Boston Beer Company, Inc. S&P 500 Index S&P 500 Beverages Index Peer Group

14 BOSTON BEER COMPANY Form 10-K PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Class A Common Stock is listed for trading on the New York Stock Exchange. The Company’s NYSE symbol is SAM. For the fiscal periods indicated, the high and low per share sales prices for the Class A Common Stock of The Boston Beer Company, Inc. as reported on the New York Stock Exchange-Composite Transaction Reporting System were as follows:

Fiscal 2016 High Low First Quarter $ 204.25 $ 163.55 Second Quarter $ 191.71 $ 146.42 Third Quarter $ 192.05 $ 151.06 Fourth Quarter $ 178.00 $ 149.76

Fiscal 2015 High Low First Quarter $ 323.99 $ 257.24 Second Quarter $ 272.83 $ 237.62 Third Quarter $ 236.55 $ 197.05 Fourth Quarter $ 258.43 $ 201.90

There were 10,526 holders of record of the Company’s Class A Common Stock as of February 17, 2017. Excluded from the number of stockholders of record are stockholders who hold shares in “nominee” or “street” name. The closing price per share of the Company’s Class A Common Stock as of February 17, 2017, as reported under the New York Stock Exchange-Composite Transaction Reporting System, was $169.75.

Class A Common Stock

At December 31, 2016, the Company had 22,700,000 authorized shares which have rights senior to Class A Common Stock, (b) alterations of of Class A Common Stock with a par value of $.01, of which 9,235,924 rights or terms of the Class A or Class B Common Stock as set forth in were issued and outstanding, which includes 64,968 shares that have the Articles of Organization of the Company, (c) certain other amendments trading restrictions. The Class A Common Stock has no voting rights, of the Articles of Organization of the Company, (d) certain mergers or except (1) as required by law, (2) for the election of Class A Directors, consolidations with, or acquisitions of, other entities, and (e) sales or and (3) that the approval of the holders of the Class A Common Stock is dispositions of any significant portion of the Company’s assets. required for (a) future authorizations or issuances of additional securities

Class B Common Stock

At December 31, 2016, the Company had 4,200,000 authorized shares As of February 17, 2017, C. James Koch, the Company’s Chairman, was of Class B Common Stock with a par value of $.01, of which 3,197,355 the direct or indirect holder of record of all of the Company’s issued and shares were issued and outstanding. The Class B Common Stock has full outstanding Class B Common Stock. voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to The holders of the Class A and Class B Common Stock are entitled the Company’s Articles of Organization, (b) mergers or consolidations with, to dividends, on a share-for-share basis, only if and when declared by or acquisitions of, other entities, (c) sales or dispositions of any significant the Board of Directors of the Company out of funds legally available for portion of the Company’s assets and (d) equity-based and other executive payment thereof. Since its inception, the Company has not paid dividends compensation and other significant corporate matters, such as approval and does not currently anticipate paying dividends on its Class A or Class of the Company’s independent registered public accounting firm. The B Common Stock in the foreseeable future. Company’s Class B Common Stock is not listed for trading. Each share of Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of any Class B holder.

BOSTON BEER COMPANY Form 10-K 15 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Repurchases of the Registrants Class A Common Stock

As of December 31, 2016, the Company has repurchased a cumulative total of approximately 12.5 million shares of its Class A Common Stock for an aggregate purchase price of approximately $607.8 million. During the twelve months ended December 31, 2016, the Company repurchased 948,117 shares of its Class A Common Stock as illustrated in the table below:

Total Number of Shares Approximate Dollar Value Purchased as Part of of Shares that May Yet be Total Number of Average Price Publicly Announced Plans Purchased Under the Plans Period Shares Purchased Paid per Share or Programs or Programs December 27, 2015 to January 30, 2016 129,322 $ 178.33 128,798 $ 55,912,890 January 31, 2016 to February 27, 2016 103,605 183.12 103,328 86,961,273 February 28, 2016 to March 26, 2016 100,719 187.34 100,407 68,215,806 March 27, 2016 to April 30, 2016 143,676 173.98 143,352 54,167,002 May 1, 2016 to May 28, 2016 130,318 153.69 129,964 34,182,017 May 29, 2016 to June 25, 2016 119,987 158.41 119,519 15,231,260 June 26, 2016 to July 30, 2016 28,020 168.85 27,723 25,533,994 July 31, 2016 to August 27, 2016 12,876 184.54 12,732 23,175,199 August 28, 2016 to September 24, 2016 20,025 166.41 19,961 19,851,706 September 25, 2016 to October 29, 2016 35,165 156.84 35,109 194,341,191 October 30, 2016 to November 26, 2016 25,252 165.03 25,241 190,173,900 November 27, 2016 to December 31, 2016 99,152 171.16 98,742 173,248,179 TOTAL 948,117 $ 170.89 944,876 $ 173,248,179

Of the shares that were purchased during the period, 3,241 shares represent repurchases of unvested investment shares issued under the Investment Share Program of the Company’s Employee Equity Incentive Plan.

16 BOSTON BEER COMPANY Form 10-K PART II Item 6 Selected Consolidated Financial Data

ITEM 6. Selected Consolidated Financial Data

Year Ended

Dec. 31 2016 (53 weeks) Dec. 26 2015 Dec. 27 2014 Dec. 28 2013 Dec. 29 2012 (in thousands, except per share and net revenue per barrel data) Income Statement Data: Revenue $ 968,994 $ 1,024,040 $ 966,478 $ 793,705 $ 628,580 Less excise taxes 62,548 64,106 63,471 54,652 48,358 Net revenue 906,446 959,934 903,007 739,053 580,222 Cost of goods sold 446,776 458,317 437,996 354,131 265,012 Gross profit 459,670 501,617 465,011 384,922 315,210 Operating expenses: Advertising, promotional and selling expenses 244,213 273,629 250,696 207,930 169,306 General and administrative expenses 78,033 71,556 65,971 62,332 50,171 Impairment (gain on sale) of assets, net (235) 258 1,777 1,567 149 Total operating expenses 322,011 345,443 318,444 271,829 219,626 Operating income 137,659 156,174 146,567 113,093 95,584 Other expense, net (538) (1,164) (973) (552) (67) Income before provision for income taxes 137,121 155,010 145,594 112,541 95,517 Provision for income taxes 49,772 56,596 54,851 42,149 36,050 NET INCOME $ 87,349 $ 98,414 $ 90,743 $ 70,392 $ 59,467 Net income per share — basic $ 6.93 $ 7.46 $ 6.96 $ 5.47 $ 4.60 Net income per share — diluted $ 6.79 $ 7.25 $ 6.69 $ 5.18 $ 4.39 Weighted average shares outstanding — basic 12,533 13,123 12,968 12,766 12,796 Weighted average shares outstanding — diluted 12,796 13,520 13,484 13,504 13,435 Balance Sheet Data: Working capital $ 99,719 $ 112,443 $ 97,292 $ 59,901 $ 73,448 Total assets $ 623,297 $ 645,400 $ 605,161 $ 444,075 $ 359,484 Total long-term obligations $ 75,196 $ 73,019 $ 58,851 $ 37,613 $ 25,499 Total stockholders’ equity $ 446,582 $ 461,221 $ 436,140 $ 302,085 $ 245,091 Statistical Data: Barrels sold 4,019 4,256 4,103 3,416 2,746 Net revenue per barrel $ 225.55 $ 225.55 $ 220.08 $ 216.35 $ 211.30

BOSTON BEER COMPANY Form 10-K 17 PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In this Form 10-K and in other documents incorporated herein, as well as assurance. Further, any forward-looking statement speaks only as of the in oral statements made by the Company, statements that are prefaced date on which such statement is made, and the Company undertakes no with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” obligation to update any forward-looking statement to reflect future events “project,” “intend,” “designed,” and similar expressions, are intended to identify or circumstances. Forward-looking statements should not be relied upon forward-looking statements regarding events, conditions, and financial trends as a prediction of actual future financial condition or results. These forward- that may affect the Company’s future plans of operations, business strategy, looking statements, like any forward-looking statements, involve risks and results of operations, and financial position. These statements are based uncertainties that could cause actual results to differ materially from those on the Company’s current expectations and estimates as to prospective projected or anticipated. Such risks and uncertainties include the factors set events and circumstances about which the Company can give no firm forth above and the other information set forth in this Form 10-K.

Introduction

The Boston Beer Company is engaged in the business of producing and craft beer category percentage volume growth was approximately 7% and selling alcohol beverages primarily in the domestic market and, to a lesser the Better Beer category percentage volume growth was approximately extent, in selected international markets. The Company’s revenues are primarily 6%, while the total beer category volume was essentially flat. The Company derived by selling its beers, hard ciders and hard seltzers to Distributors, believes that the Better Beer category is approximately 29% of United who in turn sell the products to retailers and drinkers. States beer consumption by volume. The Company estimates the Hard Cider category to be less than 1% of the total beer category and believes it The Company’s alcohol beverages compete primarily in the Better Beer has many characteristics similar to the Better Beer category. The Company category, which includes imported beers and craft beers. This category has believes that significant opportunity continues to exist for the Better Beer seen high single-digit compounded annual growth over the past ten years. and Hard Cider categories to gain market share in the total beer category. Defining factors for Better Beer include superior quality, image and taste, Depletions or Distributor sales to retailers of the Company’s beers, hard supported by appropriate pricing. The Company believes that the Better ciders and hard seltzers for the 53 week fiscal period ended December 31, Beer category is positioned to increase market share, as drinkers continue 2016, decreased approximately 5% from the comparable 52 week fiscal to trade up in taste and quality. The Company estimates that in 2016 the period in the prior year.

Outlook

Year-to-date depletions reported to the Company for the 6 weeks ended estimates a full-year 2017 effective tax rate of approximately 37%, which February 11, 2017 are estimated by the Company to have decreased excludes the impact of the new Accounting Standard “Employee Share- approximately 15% from the comparable weeks in 2016. Based Payment Accounting” (“ASU 2016-09”) which is effective for the company on January 1, 2017. The Company is not currently planning to The Company is targeting earnings per diluted share for 2017 of between provide forward guidance on the impact that ASU 2016-09 will have on the $4.20 and $6.20, but actual results could vary significantly from this target. Company’s 2017 financial statements and full-year effective tax rate as this The 2017 fiscal year includes only 52 weeks compared to the 2016 fiscal will mainly depend upon unpredictable future events, including the timing year which included 53 weeks. The Company is currently planning that 2017 and value realized upon exercise of stock options versus the fair value when depletions and shipments percentage change will be between minus 7% those options were granted. and plus 1%. The Company is targeting national price increases of between 1% and 2%. Full-year 2017 gross margins are currently expected to be The Company is continuing to evaluate 2017 capital expenditures. Its between 51% and 52%. The Company intends to increase advertising, current estimates are between $40 million and $60 million, consisting mostly promotional and selling expenses by between $20 million and $30 million of continued investments in the Company’s breweries. The actual total for the full year 2017, which does not include any increases in freight costs amount spent on 2017 capital expenditures may well be different from these for the shipment of products to its Distributors. The Company intends estimates. Based on information currently available, the Company believes to increase its investment in its brands in 2017 commensurate with the that its capacity requirements for 2017 can be covered by its Company- opportunities for growth that it sees, but there is no guarantee that such owned breweries and existing contracted capacity at third-party brewers. increased investments will result in increased volumes. The Company

18 BOSTON BEER COMPANY Form 10-K PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Year Ended December 31, 2016 (53 weeks) Compared to Year Ended December 26, 2015 (52 weeks)

Year Ended Dec. 31 2016 Dec. 26 2015 (53 weeks) (52 weeks) Amount, Amount, (in thousands, except except for Per % of net except for Per % of net Amount % Per barrel per barrel) barrels sold barrel revenue barrels sold barrel revenue change change change Barrels sold 4,019 4,256 (237) -5.6% Net revenue $ 906,446 $ 225.55 100.0% $ 959,934 $ 225.55 100.0% $ (53,488) -5.6% $ — Cost of goods 446,776 111.17 49.3% 458,317 107.69 47.7% (11,541) -2.5% 3.48 Gross profit 459,670 114.38 50.7% 501,617 117.86 52.3% (41,947) -8.4% (3.48) Advertising, promotional and selling expenses 244,213 60.77 26.9% 273,629 64.29 28.5% (29,416) -10.8% (3.52) General and administrative expenses 78,033 19.42 8.6% 71,556 16.81 7.5% 6,477 9.1% 2.61 Impairment (gain on sale) of assets, net (235) (0.06) 0.0% 258 0.06 0.0% (493) -191.1% (0.12) Total operating expenses 322,011 80.13 35.5% 345,443 81.17 36.0% (23,432) -6.8% (1.04) Operating income 137,659 34.25 15.2% 156,174 36.70 16.3% (18,515) -11.9% (2.45) Other expense, net (538) (0.13) -0.1% (1,164) (0.27) -0.1% 626 -53.8% 0.14 Income before provision for income taxes 137,121 34.12 15.1% 155,010 36.42 16.1% (17,889) -11.5% (2.30) Provision for income taxes 49,772 12.38 5.5% 56,596 13.30 5.9% (6,824) -12.1% (0.92) NET INCOME $ 87,349 $ 21.74 9.6% $ 98,414 $ 23.12 10.3% $ (11,065) -11.2% $ (1.38)

Net revenue. Net revenue decreased by $53.5 million, or 5.6%, to Gross profit. Gross profit was $114.38 per barrel for the year ended $906.4 million for the year ended December 31, 2016, as compared December 31, 2016, as compared to $117.86 per barrel for the year to $959.9 million for the year ended December 26, 2015, due primarily ended December 26, 2015. Gross margin was 50.7% for the year ended to decreased shipments. December 31, 2016, as compared to 52.3% for the year ended December 26, 2015. The decrease in gross profit per barrel of $3.48 is primarily due to an Volume. Total shipment volume of 4,019,000 barrels for the year ended increase in cost of goods sold per barrel. December 31, 2016 decreased by 5.6% over comparable 2015 levels of 4,256,000 barrels, due primarily to decreases in shipments of Samuel Cost of goods sold for was $111.17 per barrel for the year ended December 31, Adams, Angry Orchard, Coney Island and Traveler brand products that were 2016, as compared to $107.69 per barrel for the year ended December 26, only partially offset by shipment increases in Twisted Tea and Truly Spiked 2015. The 2016 increase in cost of goods sold of $3.48 per barrel is the & Sparkling brand products. result of unfavorable fixed cost absorption and product mix effects partially offset by cost saving initiatives in the Company’s breweries. Depletions, or sales by Distributors to retailers, of the Company’s products for the year ended December 31, 2016 decreased by approximately 5% The Company includes freight charges related to the movement of finished compared to the prior year, primarily due to decreases in depletions of goods from manufacturing locations to Distributor locations in its advertising, Samuel Adams, Angry Orchard, Traveler and Coney Island brand products promotional and selling expense line item. As such, the Company’s gross that were only partially offset by increases in depletions of Twisted Tea and margins may not be comparable to other entities that classify costs related Truly Spiked & Sparkling brand products. to distribution differently. Net Revenue per barrel. The net revenue per barrel remained flat at Advertising, promotional and selling. Advertising, promotional and $225.55 per barrel for the year ended December 31, 2016, when compared selling expenses, decreased $29.4 million, or 10.8%, to $244.2 million for to the year ended December 26, 2015. This was due primarily to price the year ended December 31, 2016, as compared to $273.6 million for the increases and package mix effects that were offset by product mix effects year ended December 26, 2015. The decrease was primarily the result of and increased returns. decreases in freight to distributors due to lower volume and lower freight rates and lower media advertising and point-of-sale spending. Significant changes in the package mix could have a material effect on net revenue. The Company primarily packages its products in kegs, bottles Advertising, promotional and selling expenses were 26.9% of net revenue, or and cans. Assuming the same level of production, a shift in the mix from $60.77 per barrel, for the year ended December 31, 2016, as compared to kegs to bottles and cans would effectively increase revenue per barrel, as 28.5% of net revenue, or $64.29 per barrel, for the year ended December 26, the price per equivalent barrel is lower for kegs than for bottles and cans. 2015. The Company will invest in advertising and promotional campaigns The percentage of bottles and cans to total shipments increased by 1.5% that it believes are effective, but there is no guarantee that such investment to 80.2% of total shipments for the year ended December 31, 2016 as will generate sales growth. compared to the year ended December 26, 2015.

BOSTON BEER COMPANY Form 10-K 19 PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company conducts certain advertising and promotional activities in Impairment of assets. For the year ended December 31, 2016, the Company its Distributors’ markets, and the Distributors make contributions to the incurred impairment charges of $0.7 million, based upon its review of the Company for such efforts. These amounts are included in the Company’s carrying values of its property, plant and equipment. statement of operations as reductions to advertising, promotional and Stock-based compensation expense. For the year ended December 31, selling expenses. Historically, contributions from Distributors for advertising 2016, an aggregate of $6.2 million in stock-based compensation expense is and promotional activities have amounted to between 2% and 4% of net included in advertising, promotional and selling expenses and general and sales. The Company may adjust its promotional efforts in the Distributors’ administrative expenses. Stock compensation decreased by $0.5 million in markets, if changes occur in these promotional contribution arrangements, 2016 compared to 2015, primarily due to cancellation of unvested equity depending on the industry and market conditions. awards upon departure of key employees partially offset by new equity General and administrative. General and administrative expenses awards granted in 2016. increased by $6.5 million, or 9.1%, to $78.0 million for the year ended Provision for income taxes. The Company’s effective tax rate for the December 31, 2016, as compared to $71.6 million for the comparable year ended December 31, 2016 of 36.3% decreased from the year ended period in 2015. The increase was primarily due to increases in salary and December 26, 2015 rate of approximately 36.5%. This decrease was due benefits and facilities costs. to a slight decrease in tax valuation reserves during 2016. Gain on sale of assets. For the year ended December 31, 2016, the Company recognized a $1.0 million gain on the sale of land owned in Freetown, Massachusetts.

Year Ended December 26, 2015 (52 weeks) Compared to Year Ended December 27, 2014 (52 weeks) Year Ended Dec. 26 2015 Dec. 27 2014 (52 weeks) (52 weeks) Amount, Amount, (in thousands, except except for Per % of net except for Per % of net Amount % Per barrel per barrel) barrels sold barrel revenue barrels sold barrel revenue change change change Barrels sold 4,256 4,103 153 3.7% Net revenue $ 959,934 $ 225.55 100.0% $ 903,007 $ 220.08 100.0% $ 56,927 6.3% $ 5.47 Cost of goods 458,317 107.69 47.7% 437,996 106.75 48.5% 20,321 4.6% 0.94 Gross profit 501,617 117.86 52.3% 465,011 113.33 51.5% 36,606 7.9% 4.53 Advertising, promotional and selling expenses 273,629 64.29 28.5% 250,696 61.10 27.8% 22,933 9.1% 3.19 General and administrative expenses 71,556 16.81 7.5% 65,971 16.08 7.3% 5,585 8.5% 0.73 Impairment (gain on sale) of assets, net 258 0.06 0.0% 1,777 0.43 0.2% (1,519) -85.5% (0.37) Total operating expenses 345,443 81.17 36.0% 318,444 77.61 35.3% 26,999 8.5% 3.56 Operating income 156,174 36.70 16.3% 146,567 35.72 16.2% 9,607 6.6% 0.98 Other expense, net (1,164) (0.27) -0.1% (973) (0.24) -0.1% (191) 19.6% (0.03) Income before provision for income taxes 155,010 36.42 16.1% 145,594 35.48 16.1% 9,416 6.5% 0.94 Provision for income taxes 56,596 13.30 5.9% 54,851 13.37 6.1% 1,745 3.2% (0.07) NET INCOME $ 98,414 $ 23.12 10.3% $ 90,743 $ 22.12 10.0% $ 7,671 8.5% $ 1.00

Net revenue. Net revenue increased by $56.9 million, or 6.3%, to Significant changes in the package mix could have a material effect on $959.9 million for the year ended December 26, 2015, as compared net revenue. The Company primarily packages its brands in kegs, bottles to $903.0 million for the year ended December 27, 2014, due primarily and cans. Assuming the same level of production, a shift in the mix from to increased shipments and increased revenue per barrel. kegs to bottles and cans would effectively increase revenue per barrel, as the price per equivalent barrel is lower for kegs than for bottles and cans. Volume. Total shipment volume of 4,256,000 barrels for the year ended The percentage of bottles and cans to total shipments increased by 1.7% December 26 2015 increased by 3.7% over comparable 2014 levels of to 78.7% of total shipments for the year ended December 26, 2015 as 4,103,000 barrels, due primarily to increases in shipments of Coney Island, compared to the year ended December 27, 2014. Twisted Tea, Angry Orchard and Traveler brand products that were only partially offset by shipment declines in Samuel Adams brand products. Gross profit. Gross profit was $117.86 per barrel for the year ended December 26, 2015, as compared to $113.33 per barrel for the year Depletions, or sales by Distributors to retailers, of the Company’s products ended December 27, 2014. Gross margin was 52.3% for the year ended for the year ended December 26, 2015 increased by approximately 4% December 26, 2015, as compared to 51.5% for the year ended December 27, compared to the prior year, primarily due to increases in depletions of Twisted 2014. The increase in gross profit per barrel of $4.53 is primarily due to an Tea, Coney Island, Angry Orchard and Traveler brand products that were only increase in net revenue per barrel, partially offset by an increase in cost of partially offset by declines in depletions of Samuel Adams brand products. goods sold per barrel. Net Revenue per barrel. The net revenue per barrel increased by 2.5% to Cost of goods sold was $107.69 per barrel for the year ended December 26, $225.55 per barrel for the year ended December 26, 2015, as compared 2015, as compared to $106.75 per barrel for the year ended December 27, to $220.08 per barrel for the year ended December 27, 2014, due primarily 2014. The 2015 increase in cost of goods sold of $0.94 per barrel is primarily to price increases and changes in product and package mix. due to product and package mix and higher brewery operating costs, partially offset by lower ingredient costs. 20 BOSTON BEER COMPANY Form 10-K PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company includes freight charges related to the movement of finished and promotional activities have amounted to between 2% and 4% of net goods from manufacturing locations to Distributor locations in its advertising, sales. The Company may adjust its promotional efforts in the Distributors’ promotional and selling expense line item. As such, the Company’s gross markets, if changes occur in these promotional contribution arrangements, margins may not be comparable to other entities that classify costs related depending on the industry and market conditions. to distribution differently. General and administrative. General and administrative expenses increased Advertising, promotional and selling. Advertising, promotional and by $5.6 million, or 8.5%, to $71.6 million for the year ended December 26, selling expenses, increased $22.9 million, or 9.1%, to $273.6 million for 2015, as compared to $66.0 million for the comparable period in 2014. the year ended December 26, 2015, as compared to $250.7 million for The increase was primarily due to increases in salary and benefit expenses, the year ended December 27, 2014. The increase was primarily a result of consulting and facilities costs. increased media advertising of $14.6 million, increased costs for additional Impairment of assets. For the year ended December 26, 2015, the Company sales personnel and commissions of $5.5 million and increased point of incurred impairment charges of $0.3 million, based upon its review of the sale and local marketing of $4.1 million. carrying values of its property, plant and equipment. Advertising, promotional and selling expenses were 28.5% of net revenue, or Stock-based compensation expense. For the year ended December 26, $64.29 per barrel, for the year ended December 26, 2015, as compared to 2015, an aggregate of $6.7 million in stock-based compensation expense is 27.8% of net revenue, or $61.10 per barrel, for the year ended December 27, included in advertising, promotional and selling expenses and general and 2014. The Company will invest in advertising and promotional campaigns administrative expenses. Stock compensation decreased by $0.2 million in that it believes are effective, but there is no guarantee that such investment 2015 compared to 2014, primarily due to performance not being achieved will generate sales growth. on certain awards granted during 2015. The Company conducts certain advertising and promotional activities in Provision for income taxes. The Company’s effective tax rate for the its Distributors’ markets, and the Distributors make contributions to the year ended December 26, 2015 of 36.5% decreased from the year ended Company for such efforts. These amounts are included in the Company’s December 27, 2014 rate of approximately 37.7%. This decrease was statement of operations as reductions to advertising, promotional and primarily the result of an increased federal manufacturing deduction and selling expenses. Historically, contributions from Distributors for advertising lower state tax rates.

Liquidity and Capital Resources

Cash decreased to $91.0 million as of December 31, 2016 from $94.2 million difference in financing cash flow in 2016 from 2015 is primarily due to an as of December 26, 2015, reflecting cash used in financing activities and increase in stock repurchases under the Company’s Stock Repurchase for purchases of property, plant and equipment that was only partially offset Program and a decrease in proceeds from the exercise of stock options by cash provided by operating activities. and the related tax benefits. Cash provided by or used in operating activities consists of net income, In 1998, the Board of Directors authorized management to implement a adjusted for certain non-cash items, such as depreciation and amortization, stock repurchase program. During the year ended December 31, 2016, stock-based compensation expense and related excess tax benefit, other the Company repurchased approximately 945,000 shares of its Class A non-cash items included in operating results, and changes in operating Common Stock for an aggregate purchase price of $161.7 million. As of assets and liabilities, such as accounts receivable, inventory, accounts December 31, 2016, the Company had repurchased a cumulative total payable and accrued expenses. of approximately 12.5 million shares of its Class A Common Stock for an aggregate purchase price of $607.8 million. Cash provided by operating activities in 2016 was $154.2 million and primarily consisted of net income of $87.3 million, non-cash items of $51.6 million From January 1, 2017 through February 17, 2017, the Company repurchased and a net decrease in operating assets and liabilities of $15.3 million which approximately 116,000 additional shares of its Class A Common Stock for includes a $12.0 million tax refund in the first quarter of 2016. Cash provided an aggregate purchase price of $18.5 million. As of February 17, 2017, the by operating activities in 2015 totaled $168.7 million and primarily consisted Company has repurchased a cumulative total of approximately 12.6 million of net income of $98.4 million, non-cash items of $42.1 million and a net shares of its Class A Common Stock for an aggregate purchase price of decrease in operating assets and liabilities of $28.2 million which includes $626.3 million. The Company has approximately $154.7 million remaining a $17.2 million tax refund in the first quarter of 2015. on the $781.0 million stock repurchase expenditure limit set by the Board of Directors. The Company used $46.0 million in investing activities during 2016, as compared to $74.2 million during 2015. 2016 investing activities primarily The Company expects that its cash balance as of December 31, 2016 of consisted of capital investments of $49.9 million made mostly in the Company’s $91.0 million, along with future operating cash flow and the Company’s breweries to drive efficiencies and cost reductions, support product innovation unused line of credit of $150.0 million, will be sufficient to fund future cash and future growth, partially offset by $3.9 million in proceeds from the sale requirements. The Company’s $150.0 million credit facility has a term not of land in Freetown, Massachusetts in 2016. scheduled to expire until March 31, 2019. As of the date of this filing, the Company was not in violation of any of its covenants to the lender under the Cash used in financing activities was $111.3 million during 2016, as compared credit facility and there were no amounts outstanding under the credit facility. to $76.7 million used in financing activities during 2015. The $34.7 million

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and material changes in these estimates could occur in the future. The more results of operations is based upon its consolidated financial statements, judgmental estimates are summarized below. Changes in estimates are which have been prepared in accordance with U.S. generally accepted recorded in the period in which they become known. The Company bases accounting principles. The preparation of these financial statements requires its estimates on historical experience and various other assumptions that the Company to make significant estimates and judgments that affect the the Company believes to be reasonable under the circumstances. Actual reported amounts of assets, liabilities, revenues and expenses, and related results may differ from the Company’s estimates if past experience or other disclosure of contingent assets and liabilities. These items are monitored assumptions do not turn out to be substantially accurate. and analyzed by management for changes in facts and circumstances, and

BOSTON BEER COMPANY Form 10-K 21 PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Provision for Excess or Expired Inventory Customer Programs and Incentives Inventories are stated at the lower of cost, determined on a first-in, first-out Customer programs and incentives, which include customer promotional basis, or market value. The Company enters into multi-year purchase discount programs, customer incentives and other payments, are a common commitments in order to secure adequate supply of ingredients and practice in the alcohol beverage industry. The Company makes these payments packaging, to brew and package its products. Inventory on hand and under to customers and incurs these costs to promote sales of products and to purchase commitments totaled approximately $173.7 million at December maintain competitive pricing. Amounts paid in connection with customer 31, 2016. The Company’s provisions for excess or expired inventory are programs and incentives are recorded as reductions to net revenue or as based on management’s estimates of forecasted usage of inventories on advertising, promotional and selling expenses in accordance with ASC hand and under contract. Forecasting usage involves significant judgments Topic 605-50, Revenue Recognition- Customer Payments and Incentives, regarding future demand for the Company’s various existing products and based on the nature of the expenditure. Amounts paid to customers totaled products under development as well as the potency and shelf-life of various $54.4 million, $55.3 million, and $52.4 million in fiscal year 2016, 2015, ingredients. A significant change in the timing or level of demand for certain and 2014, respectively. products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions Customer promotional discount programs are entered into with Distributors for excess or expired inventory are recorded as a cost of goods sold and for certain periods of time. Amounts paid to Distributors in connection with have historically been adequate to provide for losses on its raw materials. these programs in fiscal years 2016, 2015, and 2014 were $33.2 million, Provision for excess or expired inventory included in cost of goods sold $33.2 million, and $28.5 million, respectively. The reimbursements for discounts was $4.5 million, $4.0 million, and $6.1 million in fiscal years 2016, 2015, to Distributors are recorded as reductions to net revenue. The agreed-upon and 2014, respectively. discount rates are applied to certain Distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make Valuation of Long-Lived Assets certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and The Company’s long-lived assets include property, plant and equipment paid have historically been in line with allowances recorded by the Company, which are depreciated over their estimated useful lives. The carrying value however, the amounts could differ from the estimated allowance. of property, plant and equipment, net of accumulated depreciation, at Customer incentives and other payments are made primarily to Distributors December 31, 2016 was $408.4 million. For purposes of determining whether based upon performance of certain marketing and advertising activities. there are any impairment losses, management has historically examined Depending on applicable state laws and regulations, these activities promoting the carrying value of the Company’s identifiable long-lived assets, including the Company’s products may include, but are not limited to point-of-sale and their useful lives, when indicators of impairment are present. Evaluations merchandise placement, samples, product displays, promotional programs of whether indicators of impairment exist involve judgments regarding the at retail locations and meals, travel and entertainment. Amounts paid to current and future business environment and the length of time the Company customers in connection with these programs in fiscal years 2016, 2015, intends to use the asset. For all long-lived assets, if an impairment loss is and 2014 were $21.2 million, $22.1 million, and $23.9 million, respectively. In identified based on the fair value of the asset, as compared to the carrying fiscal 2016, 2015, and 2014, the Company recorded certain of these costs in value of the asset, such loss would be charged to expense in the period the the total amount of $16.1 million, $16.6 million, and $18.7 million respectively impairment is identified. Estimating the amount of impairment, if any, requires as reductions to net revenue. Costs recognized in net revenues include, significant judgments including identification of potential impairments, market but are not limited to, promotional discounts, sales incentives and certain comparison to similar assets, estimated cash flows to be generated by the other promotional activities. Costs recognized in advertising, promotional asset, discount rates, and the remaining useful life of the asset. Impairment and selling expenses include point of sale materials, samples and media of assets included in operating expenses was $0.7 million, $0.3 million, and advertising expenditures in local markets. These costs are recorded as $1.8 million in fiscal years 2016, 2015, and 2014, respectively. incurred, generally when invoices are received; however certain estimates are required at period end. Estimates are based on historical and projected experience for each type of program or customer and have historically been Revenue Recognition in line with actual costs incurred. Net revenue includes product sales, less customer programs and incentives, In connection with its preparation of financial statements and other financial reserves for stale beer returns and excise taxes. The Company recognizes reporting, management is required to make certain estimates and assumptions revenue on product sales at the time when the product is shipped and regarding the amount and timing of expenditures resulting from these the following conditions are met: persuasive evidence of an arrangement activities. Actual expenditures incurred could differ from management’s exists, title has passed to the customer according to the shipping terms, estimates and assumptions. the price is fixed and determinable, and collection of the sales proceeds is reasonably assured. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. Kegs and Pallets Inventory and Refundable The Company is committed to maintaining the freshness of the product in Deposits the market. In certain circumstances and with the Company’s approval, the Company accepts and destroys stale beer that is returned by Distributors. The Company distributes its draft beer in kegs and packaged beer Where legal, the Company credits approximately fifty percent of the Distributor’s primarily in glass bottles and cans and such kegs, bottles and cans are cost of the beer that has passed its expiration date for freshness when it is shipped on pallets to Distributors. Most kegs and pallets are owned by the returned to the Company or destroyed. The Company reduces revenue and Company. Upon shipment of beer to Distributors, the Company collects a establishes a reserve based upon both historical returns and knowledge refundable deposit on the kegs and pallets. As of December 31, 2016 and of specific return transactions. Estimating this reserve involves significant December 26, 2015, deposits held by the Company totaled $15.8 million judgments and estimates, including comparability of historical return trends and $18.9 million, respectively. The Company has experienced some loss to future trends, lag time from date of sale to date of return, and product of kegs and pallets and anticipates that some loss will occur in future mix of returns. Historically, the cost of actual stale beer returns has been in periods. The Company believes that the loss of kegs and pallets, after line with established reserves, however, the cost could differ materially from considering the forfeiture of related deposits, has not been material to the estimated reserve which would impact revenue. As of December 31, the financial statements. The Company uses internal records, records 2016 and December 26, 2015, the stale beer reserve was $5.2 million and maintained by Distributors, records maintained by other third party vendors $3.3 million, respectively. and historical information to estimate the physical count of kegs and

22 BOSTON BEER COMPANY Form 10-K PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations pallets held by Distributors. These estimates affect the amount recorded Income Taxes as property, plant and equipment and current liabilities as of the date of the financial statements. The actual liability for refundable deposits could Income tax expense was $49.8 million, $56.6 million, and $54.9 million in differ from these estimates. fiscal years 2016, 2015, and 2014, respectively. The Company provides for deferred taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax Stock-Based Compensation consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. This results in differences The Company accounts for stock-based compensation in accordance with the between the book and tax basis of the Company’s assets, liabilities and fair value recognition provisions of Accounting Standards Codification Topic carry-forwards such as tax credits. In estimating future tax consequences, 718, Compensation — Stock Compensation. Stock-based compensation all expected future events, other than enactment of changes in the tax was $6.2 million, $6.7 million, and $6.9 million in fiscal years 2016, 2015, and laws or rates, are generally considered. Valuation allowances are provided 2014, respectively. Various option-pricing models are used to calculate the to the extent deemed necessary when realization of deferred tax assets fair value of options. All option-pricing models require the input of subjective appears unlikely. assumptions. These assumptions include the estimated volatility of the Company’s common stock price over the expected term, the expected The calculation of the Company’s tax liabilities involves dealing with dividend rate, the estimated post-vesting forfeiture rate, the risk-free interest uncertainties in the application of complex tax regulations in several different rate and expected exercise behavior. state tax jurisdictions. The Company is periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include inquiries regarding In addition, an estimated pre-vesting forfeiture rate is applied in the recognition the timing and amount of deductions and the allocation of income among of the compensation charge. Periodically, the Company grants performance- various tax jurisdictions. The Company records estimated reserves for based stock options, related to which it only recognizes compensation exposures associated with positions that it takes on its income tax returns. expense if it is probable that performance targets will be met. Consequently, Historically, the valuation allowances and reserves for uncertain tax positions at the end of each reporting period, the Company estimates whether it is have been adequate to cover the related tax exposures. probable that performance targets will be met. Changes in the subjective assumptions and estimates can materially affect the amount of stock- based compensation expense recognized in the consolidated statements of comprehensive income.

Business Environment

The alcoholic beverage industry is highly regulated at the federal, state hard cider categories and have acquired interests in craft beers and hard and local levels. The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) cider makers, or importation rights to foreign brands. Import brewers and and the Justice Department’s Bureau of Alcohol, Tobacco, Firearms and major domestic brewers are able to compete more aggressively than the Explosives enforce laws under the Federal Alcohol Administration Act. The Company, as they have substantially greater resources, marketing strength TTB is responsible for administering and enforcing excise tax laws that and distribution networks than the Company. The Company anticipates directly affect the Company’s results of operations. State and regulatory craft beer competition increasing as craft brewers have benefited from authorities have the ability to suspend or revoke the Company’s licenses eleven years of healthy growth and are looking to maintain these trends. and permits or impose substantial fines for violations. The Company has The Company also increasingly competes with wine and spirits companies, established strict policies, procedures and guidelines in efforts to ensure some of which have significantly greater resources than the Company. This compliance with all applicable state and federal laws. However, the loss or competitive environment may affect the Company’s overall performance revocation of any existing license or permit could have a material adverse within the Better Beer category. As the market matures and the Better Beer effect on the Company’s business, results of operations, cash flows and category continues to consolidate, the Company believes that companies financial position. that are well-positioned in terms of brand equity, marketing and distribution will have greater success than those who do not. With approximately 350 The Better Beer category is highly competitive due to the large number Distributors nationwide and the Company’s sales force of approximately of regional craft and specialty brewers and the brewers of imported beers 415 people, a commitment to maintaining brand equity and the quality who distribute similar products that have similar pricing and target drinkers. of its beer, the Company believes it is well positioned to compete in the The Company believes that its pricing is appropriate given the quality Better Beer market. and reputation of its core brands, while realizing that economic pricing pressures may affect future pricing levels. Certain major domestic brewers The demand for the Company’s products is also subject to changes in have also developed brands to compete within the Better Beer, FMB and drinkers’ tastes.

The Potential Impact of Known Facts, Commitments, Events and Uncertainties

Hops Purchase Commitments and New Zealand Dollars, was $56.3 million. The Company has no forward exchange contracts in place as of December 31, 2016 and currently intends The Company utilizes several varieties of hops in the production of its to purchase future hops using the exchange rate at the time of purchase. products. To ensure adequate supplies of these varieties, the Company These contracts were deemed necessary in order to bring hop inventory enters into advance multi-year purchase commitments based on forecasted levels and purchase commitments into balance with the Company’s current future hop requirements, among other factors. brewing volume and hop usage forecasts. In addition, these contracts enable the Company to secure its position for future supply with hop vendors in During 2016, the Company entered into several hops future contracts in the face of some competitive buying activity. the normal course of business. The total value of the contracts entered into as of December 31, 2016, which are denominated in U.S. Dollars, Euros

BOSTON BEER COMPANY Form 10-K 23 PART II Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s accounting policy for hop inventory and purchase management’s estimates. The Company continues to manage inventory commitments is to recognize a loss by establishing a reserve for aged hops levels and purchase commitments in an effort to maximize utilization of hops and to the extent inventory levels and commitments exceed forecasted needs. on hand and hops under commitment. However, changes in management’s The computation of the excess inventory requires management to make assumptions regarding future sales growth, product mix and hops market certain assumptions regarding future sales growth, product mix, cancellation conditions could result in future material losses. costs and supply, among others. Actual results may differ materially from

Contractual Obligations The following table presents contractual obligations as of December 31, 2016:

Payments Due by Period (in thousands) Total 2017 2018-2019 2020-2021 Thereafter Hops, barley and wheat $ 71,128 $ 27,784 $ 29,244 $ 9,361 $ 4,739 Advertising 27,430 26,825 605 — — Apples and other ingredients 27,225 27,225 — — — Glass bottles 16,551 16,551 — — — Operating leases 15,900 3,343 5,648 5,194 1,715 Equipment and machinery 10,700 10,700 — — — Other 4,505 2,624 1,881 — — TOTAL CONTRACTUAL OBLIGATIONS $ 173,439 $ 115,052 $ 37,378 $ 14,555 $ 6,454

The Company had outstanding total non-cancelable contractual obligations For the fiscal year ended December 31, 2016, the Company brewed most of $173.4 million at December 31, 2016. These obligations are made up of all of its volume at Company-owned breweries. In the normal course of its hops, barley and wheat of $71.1 million, advertising contracts of $27.4 million, business, the Company has historically entered into various production apples and other ingredients of $27.2 million, glass bottles of $16.6 million, arrangements with other brewing companies. Pursuant to these arrangements, operating leases of $15.9 million, equipment and machinery of $10.7 million the Company purchases the liquid produced by those brewing companies, and other commitments of $4.5 million. including the raw materials that are used in the liquid, at the time such liquid goes into fermentation. The Company is required to repurchase all The Company has entered into contracts for the supply of a portion of its unused raw materials purchased by the brewing company specifically for hops requirements. These purchase contracts extend through crop year the Company’s beers at the brewing company’s cost upon termination of 2022 and specify both the quantities and prices, denominated in U.S. Dollars, the production arrangement. The Company is also obligated to meet annual Euros and New Zealand Dollars to which the Company is committed. volume requirements in conjunction with certain production arrangements, Hops purchase commitments outstanding at December 31, 2016 totaled which are not material to the Company’s operations. $56.3 million, based on the exchange rates on that date. The Company’s arrangements with other brewing companies require it Currently, the Company has entered into contracts for barley and wheat with to periodically purchase equipment in support of brewery operations. As two major suppliers. The contracts include crop years 2016 and 2017 and of December 31, 2016, there were no significant equipment purchase cover the Company’s barley, wheat, and malt requirements for 2017 and requirements outstanding under existing contracts. Changes to the Company’s part of 2018. These purchase commitments outstanding at December 31, brewing strategy or existing production arrangements, new production 2016 totaled $14.8 million. relationships or the introduction of new products in the future may require The Company sources glass bottles pursuant to a Glass Bottle Supply the Company to purchase equipment to support the contract breweries’ Agreement with Anchor Glass Container Corporation (“Anchor”), under operations. which Anchor is the supplier of certain glass bottles for the Company’s Cincinnati Brewery and its Pennsylvania Brewery. This agreement also establishes the terms on which Anchor may supply glass bottles to other Recent Accounting Pronouncements breweries where the Company brews its beers. Under the agreement with See Note B of the Notes to Consolidated Financial Statements. Anchor, the Company has minimum and maximum purchase commitments that are based on Company-provided production estimates which, under normal business conditions, are expected to be fulfilled. Minimum purchase commitments under this agreement, assuming the supplier is unable to replace Off-Balance Sheet Arrangements lost production capacity cancelled by the Company, as of December 31, The Company has not entered into any material off-balance sheet 2016 totaled $16.6 million. arrangements as of December 31, 2016. The Company has various operating lease agreements in place for facilities and equipment as of December 31, 2016. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2022.

24 BOSTON BEER COMPANY Form 10-K PART II Item 7A Quantitative and Qualitative Disclosures About Market Risk

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, the Company is exposed to the impact The cost of these commitments change as foreign exchange rates fluctuate. of fluctuations in foreign exchange rates. The Company does not enter Currently, it is not the Company’s policy to hedge against foreign currency into derivatives or other market risk sensitive instruments for the purpose fluctuations. of speculation or for trading purposes. Market risk sensitive instruments include derivative financial instruments, other financial instruments and The interest rate for borrowings under the Company’s credit facility is based derivative commodity instruments, such as futures, forwards, swaps and on either (i) the Alternative Prime Rate (3.75% at December 31, 2016) or options, that are exposed to rate or price changes. (ii) the applicable LIBOR rate (0.72% at December 31, 2016) plus 0.45%, and therefore, subjects the Company to fluctuations in such rates. As of The Company enters into hops purchase contracts, as described above December 31, 2016, the Company had no amounts outstanding under its under “Hops Purchase Commitments”, and makes purchases of other current line of credit. ingredients, equipment and machinery denominated in foreign currencies.

Sensitivity Analysis

The Company applies a sensitivity analysis to reflect the impact of a 10% There are many economic factors that can affect volatility in foreign exchange hypothetical adverse change in the foreign currency rates. A potential adverse rates. As such factors cannot be predicted, the actual impact on earnings fluctuation in foreign currency exchange rates could negatively impact due to an adverse change in the respective rates could vary substantially future cash flows by approximately $4.0 million as of December 31, 2016. from the amounts calculated above.

BOSTON BEER COMPANY Form 10-K 25 PART II Item 8 Financial Statements and Supplementary Data

ITEM 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of The Boston Beer Company, Inc. Boston, Massachusetts We have audited the accompanying consolidated balance sheets of The Boston Beer Company, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and December 26, 2015, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the two fiscal years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Boston Beer Company, Inc. and subsidiaries as of December 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the two fiscal years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ Deloitte & Touche LLP Boston, Massachusetts February 22, 2017

26 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of The Boston Beer Company, Inc. We have audited the accompanying consolidated statements of comprehensive income, stockholders’ equity and cash flows of The Boston Beer Company, Inc. for the year ended December 27, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of The Boston Beer Company, Inc. for the year ended December 27, 2014, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 24, 2015

BOSTON BEER COMPANY Form 10-K 27 PART II Item 8 Financial Statements and Supplementary Data

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets

(in thousands, except share data) December 31, 2016 December 26, 2015 ASSETS Current Assets: Cash and cash equivalents $ 91,035 $ 94,193 Accounts receivable, net of allowance for doubtful accounts of $0 and $244 as of December 31, 2016 and December 26, 2015, respectively 36,694 38,984 Inventories 52,499 56,462 Prepaid expenses and other current assets 8,731 12,053 Income tax receivable 4,928 14,928 Deferred income taxes 7,351 6,983 Total current assets 201,238 223,603 Property, plant and equipment, net 408,411 409,926 Other assets 9,965 8,188 Goodwill 3,683 3,683 TOTAL ASSETS $ 623,297 $ 645,400 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 40,585 $ 42,718 Current portion of debt and capital lease obligations 60 58 Accrued expenses and other current liabilities 60,874 68,384 Total current liabilities 101,519 111,160 Deferred income taxes 64,612 56,001 Debt and capital lease obligations, less current portion 411 471 Other liabilities 10,173 16,547 Total liabilities 176,715 184,179 Commitments and Contingencies (See Note J) Stockholders’ Equity: Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,170,956 and 9,389,005 shares issued and outstanding as of December 31, 2016 and December 26, 2015, respectively 92 94 Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 3,197,355 and 3,367,355 shares issued and outstanding as of December 31, 2016 and December 26, 2015, respectively 32 34 Additional paid-in capital 349,913 290,096 Accumulated other comprehensive loss, net of tax (1,103) (951) Retained earnings 97,648 171,948 Total stockholders’ equity 446,582 461,221 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 623,297 $ 645,400

The accompanying notes are an integral part of these consolidated financial statements.

28 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

Consolidated Statements of Comprehensive Income

Year Ended December 31, 2016 (in thousands, except per share data) (53 weeks) December 26, 2015 December 27, 2014 Revenue $ 968,994 $ 1,024,040 $ 966,478 Less excise taxes 62,548 64,106 63,471 Net revenue 906,446 959,934 903,007 Cost of goods sold 446,776 458,317 437,996 Gross profit 459,670 501,617 465,011 Operating expenses: Advertising, promotional and selling expenses 244,213 273,629 250,696 General and administrative expenses 78,033 71,556 65,971 Impairment (gain on sale) of assets, net (235) 258 1,777 Total operating expenses 322,011 345,443 318,444 Operating income 137,659 156,174 146,567 Other income (expense), net: Interest income 168 56 21 Other expense, net (706) (1,220) (994) Total other income (expense), net (538) (1,164) (973) Income before provision for income tax 137,121 155,010 145,594 Provision for income taxes 49,772 56,596 54,851 NET INCOME $ 87,349 $ 98,414 $ 90,743 NET INCOME PER COMMON SHARE — BASIC $ 6.93 $ 7.46 $ 6.96 NET INCOME PER COMMON SHARE — DILUTED $ 6.79 $ 7.25 $ 6.69 Weighted-average number of common shares — Class A basic 9,189 9,619 9,202 Weighted-average number of common shares — Class B basic 3,344 3,504 3,766 Weighted-average number of common shares — diluted 12,796 13,520 13,484 Net income $ 87,349 $ 98,414 $ 90,743 Other comprehensive income (loss), net of tax: Currency translation adjustment (99) (22) — Defined benefit plans liability adjustment (53) 204 (716) Total other comprehensive income (loss), net of tax: (152) 182 (716) COMPREHENSIVE INCOME $ 87,197 $ 98,596 $ 90,027

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON BEER COMPANY Form 10-K 29 PART II Item 8 Financial Statements and Supplementary Data

Consolidated Statements of Stockholders’ Equity

FOR THE YEARS ENDED DECEMBER 31, 2016, DECEMBER 26, 2015 AND DECEMBER 27, 2014

Accumulated Other Class A Class A Class B Class B Additional Comprehensive Total Common Common Common Common Paid-in (Loss) Income, Retained Stockholders’ (in thousands) Shares Stock, Par Shares Stock, Par Capital net of tax Earnings Equity Balance at December 28, 2013 8,785 $ 88 3,962 $ 40 $ 173,025 $ (417) $ 129,349 $ 302,085 Net income 90,743 90,743 Stock options exercised and restricted shares activities, including tax benefit of $17,353 351 3 45,027 45,030 Stock-based compensation expense 6,857 6,857 Repurchase of Class A Common Stock (29) (7,859) (7,859) Conversion from Class B to Class A 345 4 (345) (4) — Defined benefit plans liability adjustment, net of tax of $455 (716) (716) Balance at December 27, 2014 9,452 95 3,617 36 224,909 (1,133) 212,233 436,140 Net income 98,414 98,414 Stock options exercised and restricted shares activities, including tax benefit of $15,350 303 3 58,522 58,525 Stock-based compensation expense 6,665 6,665 Repurchase of Class A Common Stock (616) (6) (138,699) (138,705) Conversion from Class B to Class A 250 2 (250) (2) — Defined benefit plans liability adjustment, net of tax of ($142) 204 204 Currency translation adjustment (22) (22) Balance at December 26, 2015 9,389 94 3,367 34 290,096 (951) 171,948 461,221 Net income 87,349 87,349 Stock options exercised and restricted shares activities, including tax benefit of $12,524 557 5 53,669 53,674 Stock-based compensation expense 6,148 6,148 Repurchase of Class A Common Stock (945) (9) (161,649) (161,658) Conversion from Class B to Class A 170 2 (170) (2) — Defined benefit plans liability adjustment, net of tax of $32 (53) (53) Currency translation adjustment (99) (99) BALANCE AT DECEMBER 31, 2016 9,171 $ 92 3,197 $ 32 $ 349,913 $ (1,103) $ 97,648 $ 446,582

The accompanying notes are an integral part of these consolidated financial statements.

30 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

Consolidated Statements of Cash Flows

Year Ended December 31, 2016 (in thousands) (53 weeks) December 26, 2015 December 27, 2014 Cash flows provided by operating activities: Net income $ 87,349 $ 98,414 $ 90,743 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,557 42,885 35,138 Impairment of assets 716 258 1,777 Loss on disposal of property, plant and equipment 616 515 434 Gain on sale of property, plant and equipment (951) — — Bad debt (recovery) expense (244) 165 (16) Stock-based compensation expense 6,148 6,665 6,857 Excess tax benefit from stock-based compensation arrangements (12,524) (15,350) (17,353) Deferred income taxes 8,243 6,986 15,350 Changes in operating assets and liabilities: Accounts receivable 2,534 (2,289) 5,157 Inventories 445 (5,155) 5,090 Prepaid expenses, income tax receivable and other assets 14,936 11,858 (9,447) Accounts payable (1,811) 5,985 884 Accrued expenses and taxes and other current liabilities 5,479 9,014 4,578 Other liabilities (6,304) 8,732 2,019 Net cash provided by operating activities 154,189 168,683 141,211 Cash flows used in investing activities: Purchases of property, plant and equipment (49,913) (74,187) (151,784) Proceeds from sale of property, plant and equipment 3,855 — — Cash paid for intangible assets — (100) (100) Change in restricted cash 40 57 53 Net cash used in investing activities (46,018) (74,230) (151,831) Cash flows (used in) provided by financing activities: Repurchase of Class A Common Stock (164,658) (135,705) (7,859) Proceeds from exercise of stock options 40,127 42,339 27,272 Cash paid on note payable and capital lease (58) (54) (53) Excess tax benefit from stock-based compensation arrangements 12,524 15,350 17,353 Net proceeds from sale of investment shares 736 1,408 785 Net cash (used in) provided by financing activities (111,329) (76,662) 37,498 Change in cash and cash equivalents (3,158) 17,791 26,878 Cash and cash equivalents at beginning of year 94,193 76,402 49,524 Cash and cash equivalents at end of period $ 91,035 $ 94,193 $ 76,402 Supplemental disclosure of cash flow information: Income taxes paid $ 30,978 $ 45,078 $ 42,324 Income taxes refunded $ 12,064 $ 17,252 $ — (Decrease) Increase in accounts payable for repurchase of Class A Common Stock $ (3,000) $ 3,000 $ — Increase (Decrease) in accounts payable for purchase of property, plant and equipment $ 2,678 $ (1,843) $ 268

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON BEER COMPANY Form 10-K 31 PART II Item 8 Financial Statements and Supplementary Data

Notes To Consolidated Financial Statements

December 31, 2016

A. Organization and Basis of Presentation

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are Boston Beer Company.” A&S Brewing Collaborative LLC, d/b/a A&S Brewing engaged in the business of selling alcohol beverages throughout the United (“A&S”), a wholly-owned subsidiary of the Company, sells beer under various States and in selected international markets, under the trade names “The trade names that is produced under its own license and the Company’s Boston Beer Company,” “Twisted Tea Brewing Company,” “Angry Orchard licenses. In 2016, sales from A&S brands were less than 5% of net revenues, Cider Company” and “Hard Seltzer Beverage Company.” The Company’s in 2015, sales from A&S brands were less than 7% of net revenues and in Samuel Adams® beers are produced and sold under the trade name “The 2014, sales from A&S brands were less than 2% of net revenues.

B. Summary of Significant Accounting Policies

Fiscal Year highly liquid investments. Cash and cash equivalents are carried at cost, which approximates fair value. The Company’s fiscal year is a fifty-two or fifty-three week period ending on the last Saturday in December. The fiscal period 2016 consists of fifty-three The Company has restricted cash associated with a term note agreement with weeks and the fiscal periods 2015 and 2014 consist of fifty-two weeks. Bank of America that was required by the Commonwealth of Pennsylvania to fund economic development at the Company’s Pennsylvania Brewery. The restricted cash subject to this agreement amounted to $400,000 and Principles of Consolidation $456,000 at December 31, 2016 and December 26, 2015, respectively, and is included in other assets on the Company’s Consolidated Balance Sheets. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany transactions and balances have been eliminated in consolidation. Accounts Receivable and Allowance for Doubtful Accounts Segment Reporting The Company’s accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts that is based The Company consists of two operating segments that each produce and on historical trends, customer knowledge, any known disputes, and the sell alcohol beverages. The first is the Boston Beer Company operating aging of the accounts receivable balances combined with management’s ® ® segment comprised of the Company’s Samuel Adams , Twisted Tea , estimate of future potential recoverability. Receivables are written off against ® ® Angry Orchard and Truly Spiked & Sparkling brands. The second is the allowance after all attempts to collect a receivable have failed. The the A&S Brewing Collaborative operating segment which is comprised of Company believes its allowance for doubtful accounts as of December 31, The Traveler Beer Company, Coney Island Brewing Company, Angel City 2016 and December 26, 2015 are adequate, but actual write-offs could Brewing Company and Concrete Beach Brewing Company. Both segments exceed the recorded allowance. have similar economic characteristics. They sell predominantly low alcohol beverages, which are sold to the same types of customers in similar size quantities, at similar price points and through substantially the same channels Concentrations of Credit Risk of distribution. These beverages are manufactured using similar production processes, have comparable alcohol content and generally fall under the Financial instruments that potentially subject the Company to concentrations same regulatory environment. Since the operating segments are similar in the of credit risk consist principally of cash equivalents and trade receivables. areas outlined above, they are aggregated for financial statements purposes. The Company places its cash equivalents with high credit quality financial institutions. As of December 31, 2016, the Company’s cash and cash equivalents were invested in investment-grade, highly-liquid U.S. government Use of Estimates agency corporate money market accounts. The preparation of the consolidated financial statements in conformity with The Company sells primarily to a network of independent wholesalers in U.S. generally accepted accounting principles requires management to make the United States and to a network of foreign wholesalers, importers or estimates and assumptions that affect the reported amounts of assets and other agencies (collectively referred to as “Distributors”). In 2016, 2015 liabilities and disclosure of contingent assets and liabilities at the date of the and 2014, sales to foreign Distributors were approximately 4% of total financial statements and the reported amounts of revenue and expenses sales. Receivables arising from these sales are not collateralized; however, during the reporting period. Actual results could differ from those estimates. credit risk is minimized as a result of the large and diverse nature of the Company’s customer base. There were no individual customer accounts receivable balances outstanding at December 31, 2016 and December 26, Cash, Cash Equivalents and Restricted Cash 2015 that were in excess of 10% of the gross accounts receivable balance on those dates. No individual customers represented more than 10% Cash and cash equivalents at December 31, 2016 and December 26, of the Company’s revenues during fiscal years 2016, 2015, and 2014. 2015 included cash on-hand and money market instruments that are

32 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

Financial Instruments and Fair Value Refundable Deposits on Kegs and Pallets of Financial Instruments The Company distributes its draft beer in kegs and packaged beer The Company’s primary financial instruments consisted of cash equivalents, primarily in glass bottles and cans and such kegs, bottles and cans are accounts receivable, accounts payable and accrued expenses at shipped on pallets to Distributors. Most kegs and pallets are owned by December 31, 2016 and December 26, 2015. The Company determines the Company. Kegs are reflected in the Company’s balance sheets at cost the fair value of its financial assets and liabilities in accordance with and are depreciated over the estimated useful life of the keg, while pallets Financial Accounting Standards Board (“FASB”) Accounting Standards are expensed upon purchase. Upon shipment of beer to Distributors, the Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures Company collects a refundable deposit on the kegs and pallets, which (“ASC 820”). The Company believes that the carrying amount of its cash is included in current liabilities in the Company’s balance sheets. Upon equivalents, accounts receivable, accounts payable and accrued expenses return of the kegs and pallets to the Company, the deposit is refunded approximates fair value due to the short-term nature of these assets and to the Distributor. liabilities. The Company is not exposed to significant interest, currency or The Company has experienced some loss of kegs and pallets and credit risks arising from these financial assets and liabilities. anticipates that some loss will occur in future periods due to the significant volume of kegs and pallets handled by each Distributor and retailer, the homogeneous nature of kegs and pallets owned by most brewers and Inventories and Provision for Excess the relatively small deposit collected for each keg when compared with or Expired Inventory its market value. The Company believes that this is an industry-wide issue and that the Company’s loss experience is not atypical. The Company Inventories consist of raw materials, work in process and finished goods. believes that the loss of kegs and pallets, after considering the forfeiture Raw materials, which principally consist of hops, malt, apple juice, other of related deposits, has not been material to the financial statements. brewing materials and packaging, are stated at the lower of cost (first-in, The Company uses internal records, records maintained by Distributors, first-out basis) or market value. The cost elements of work in process records maintained by other third party vendors and historical information to and finished goods inventory consist of raw materials, direct labor and estimate the physical count of kegs and pallets held by Distributors. These manufacturing overhead. Packaging design costs are expensed as incurred. estimates affect the amount recorded as property, plant and equipment The provisions for excess or expired inventory are based on management’s and current liabilities as of the date of the financial statements. The actual estimates of forecasted usage of inventories on hand and under contract. liability for refundable deposits could differ from these estimates. For the A significant change in the timing or level of demand for certain products year ended December 31, 2016, the Company decreased its liability for as compared to forecasted amounts may result in recording additional refundable deposits, gross property, plant and equipment and related provisions for excess or expired inventory in the future. Provisions for accumulated depreciation by $1.1 million, $1.4 million and $1.4 million, excess inventory are included in cost of goods sold and have historically respectively. For the year ended December 26, 2015, the Company been adequate to provide for losses on its inventory. decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $0.9 million, The computation of the excess inventory requires management to make $1.2 million and $1.2 million, respectively. As of December 31, 2016 and certain assumptions regarding future sales growth, product mix, new December 26, 2015, the Company’s balance sheet includes $14.3 million products, cancellation costs, and supply, among others. The Company and $17.1 million, respectively, in refundable deposits on kegs and manages inventory levels and purchase commitments in an effort to pallets and $12.0 million and $18.9 million, respectively, in kegs, net of maximize utilization of inventory on hand and under commitments. The accumulated depreciation. Company’s accounting policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to the extent inventory levels and commitments exceed management’s expected future usage. Goodwill Provision for excess or expired inventory included in cost of goods sold was $4.5 million, $4.0 million, and $6.1 million in fiscal years 2016, 2015, The Company does not amortize goodwill, but evaluates the recoverability and 2014, respectively. of goodwill by comparing the carrying value and the fair value of its reporting units annually at the end of the fiscal month of August, or more frequently if events or changes in circumstances indicate that goodwill may be Property, Plant and Equipment impaired. The Company has concluded that its goodwill was not impaired as of December 31, 2016 and December 26, 2015. As of December 31, Property, plant, and equipment are stated at cost. Expenditures for 2016 and December 26, 2015, the goodwill of the Boston Beer Company repairs and maintenance are expensed as incurred. Major renewals and reporting unit amounted to $1.4 million. As of December 31, 2016 and betterments that extend the life of the property are capitalized. Some of December 26, 2015, the goodwill of the A&S Brewing Collaborative the Company’s equipment is used by other brewing companies to produce reporting unit amounted to $2.3 million. the Company’s products under brewing service arrangements (Note J). Depreciation is computed using the straight-line method based upon the estimated useful lives of the underlying assets as follows: Long-lived Assets

Kegs 5 years Long-lived assets are recorded at cost and depreciated over their estimated Computer software and equipment 2 to 5 years useful lives. For purposes of determining whether there are any impairment losses, as further discussed below, management has historically examined Office equipment and furniture 3 to 7 years the carrying value of the Company’s identifiable long-lived assets, including Machinery and plant equipment 3 to 20 years, or the term of the their useful lives, when indicators of impairment are present. For all long- production agreement, whichever lived assets, if an impairment loss is identified based on the fair value of is shorter the asset, as compared to the carrying value of the asset, such a loss Leasehold improvements Lesser of the remaining term of would be charged to expense in the period the impairment is identified. the lease or estimated useful life Furthermore, if the review of the carrying values of the long-lived assets of the asset indicates impairment of such assets, the Company may determine that Building and building improvements 12 to 20 years, or the remaining shorter estimated useful lives are more appropriate. In that event, the useful life of the building, whichever Company will be required to record additional depreciation in future is shorter periods, which will reduce earnings.

BOSTON BEER COMPANY Form 10-K 33 PART II Item 8 Financial Statements and Supplementary Data

Factors generally considered important which could trigger an impairment Cost of Goods Sold review on the carrying value of long-lived assets include the following: (1) significant underperformance relative to historical or projected future The following expenses are included in cost of goods sold: raw material operating results; (2) significant changes in the manner of use of acquired costs, packaging costs, costs and income related to deposit activity, assets or the strategy for the Company’s overall business; (3) underutilization purchasing and receiving costs, manufacturing labor and overhead, brewing of assets; and (4) discontinuance of products by the Company or its and processing costs, inspection costs relating to quality control, inbound customers. The Company believes that the carrying value of its long-lived freight charges, depreciation expense related to manufacturing equipment assets was realizable as of December 31, 2016 and December 26, 2015. and warehousing costs, which include rent, labor and overhead costs.

Income Taxes Shipping Costs The Company provides for deferred taxes using an asset and liability approach Costs incurred for the shipping of products to customers are included that requires the recognition of deferred tax assets and liabilities for the in advertising, promotional and selling expenses in the accompanying expected future tax consequences of events that have been recognized in consolidated statements of comprehensive income. The Company incurred the Company’s consolidated financial statements or tax returns. This results shipping costs of $49.2 million, $62.2 million, and $62.6 million in fiscal in differences between the book and tax bases of the Company’s assets years 2016, 2015, and 2014, respectively. and liabilities and carryforwards, such as tax credits. In estimating future tax consequences, all expected future events, other than enactment of changes in the tax laws or rates, are generally considered. Valuation allowances are Advertising and Sales Promotions provided when recovery of deferred tax assets does not meet the more The following expenses are included in advertising, promotional and selling likely than not standards as defined in ASC Topic 740, Income Taxes. expenses in the accompanying consolidated statements of comprehensive The calculation of the Company’s tax liabilities involves dealing with income: media advertising costs, sales and marketing expenses, salary uncertainties in the application of complex tax regulations in several and benefit expenses and meals, travel and entertainment expenses for the different state tax jurisdictions. The Company is periodically reviewed by sales, brand and sales support workforce, promotional activity expenses, tax authorities regarding the amount of taxes due. These reviews include freight charges related to shipments of finished goods from manufacturing inquiries regarding the timing and amount of deductions and the allocation locations to distributor locations and point-of-sale items. Total advertising of income among various tax jurisdictions. The Company records estimated and sales promotional expenditures of $105.3 million, $120.1 million, reserves for exposures associated with positions that it takes on its income and $100.5 million were included in advertising, promotional and selling tax returns that do not meet the more likely than not standards as defined expenses in the accompanying consolidated statements of comprehensive in ACS Topic 740, Income Taxes. income for fiscal years 2016, 2015, and 2014, respectively. The Company conducts certain advertising and promotional activities in its Distributors’ markets and the Distributors make contributions to the Excise Taxes Company for such efforts. Reimbursements from Distributors for advertising The Company is responsible for compliance with the Alcohol and Tobacco and promotional activities are recorded as reductions to advertising, Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations promotional and selling expenses. which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. Customer Programs and Incentives The Company calculates its excise tax expense based upon units shipped Customer programs and incentives, which include customer promotional and on its understanding of the applicable excise tax laws. discount programs, customer incentives and other payments, are a common practice in the alcohol beverage industry. The Company makes these payments to customers and incurs these costs to promote sales of Revenue Recognition products and to maintain competitive pricing. Amounts paid in connection Net revenue includes product sales, less the distributor promotional discount with customer programs and incentives are recorded as reductions to net allowance, certain Distributor incentives, as discussed below in Customer revenue or as advertising, promotional and selling expenses in accordance Programs and Incentives, the stale beer accrual and excise taxes. The with ASC Topic 605-50, Revenue Recognition — Customer Payments Company recognizes revenue on product sales at the time when the product and Incentives, based on the nature of the expenditure. Amounts paid to is shipped and the following conditions are met: persuasive evidence of customers totaled $54.4 million, $55.3 million, and $52.4 million in fiscal an arrangement exists, title has passed to the customer according to the year 2016, 2015, and 2014, respectively. shipping terms, the price is fixed and determinable, and collection of the sales Customer promotional discount programs are entered into with Distributors proceeds is reasonably assured. If the conditions for revenue recognition for certain periods of time. Amounts paid to Distributors in connection with are not met, the Company defers the revenue until all conditions are met. these programs in fiscal years 2016, 2015, and 2014 were $33.2 million, As of December 31, 2016 and December 26, 2015, the Company has $33.2 million, and $28.5 million, respectively. The reimbursements for deferred $5.4 million and $3.9 million, in revenue related to product shipped discounts to Distributors are recorded as reductions to net revenue. prior to these dates. These amounts are included in accrued expenses and Agreed-upon discount rates are applied to certain Distributors’ sales other current liabilities in the accompanying consolidated balance sheets. to retailers, based on volume metrics, in order to determine the total In certain circumstances and with the Company’s approval, the Company discounted amount. The computation of the discount allowance requires accepts and destroys stale beer that is returned by Distributors. The that management make certain estimates and assumptions that affect the Company generally credits approximately fifty percent of the distributor’s timing and amounts of revenue and liabilities recorded. Actual promotional cost of the beer that has passed its expiration date for freshness when it is discounts owed and paid have historically been in line with allowances returned to the Company or destroyed. The Company reduces revenue and recorded by the Company, however, the amounts could differ from the establishes an accrual based upon both historical returns, which is applied estimated allowance. to an estimated lag time for receipt of product, and knowledge of specific Customer incentives and other payments are made primarily to Distributors return transactions. Stale beer expense is reflected in the accompanying based upon performance of certain marketing and advertising activities. financial statements as a reduction of revenue; however, the actual stale beer Depending on applicable state laws and regulations, these activities expense incurred by the Company could differ from the estimated accrual.

34 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

promoting the Company’s products may include, but are not limited to presented in the financial statements with a cumulative effect adjustment point-of-sale and merchandise placement, samples, product displays, to retained earnings. The Company will elect to apply the impact (if any) promotional programs at retail locations and meals, travel and entertainment. of applying ASU 2014-09 to the most current reporting period presented Amounts paid to customers in connection with these programs in fiscal years in the financial statements with a cumulative effect adjustment to retained 2016, 2015, and 2014 were $21.2 million, $22.1 million, and $23.9 million, earnings. In August 2015, the FASB issued ASU No. 2015-14, Revenue respectively. In 2016, 2015, and 2014, the Company recorded certain from Contracts with Customers (Topic 606): Deferral of the Effective of these costs in the total amount of $16.1 million, $16.6 million, and Date. ASU 2015-14 defers the effective date of ASU 2014-09 for one $18.7 million, respectively as reductions to net revenue. Costs recognized year, making it effective for the year beginning December 31, 2017, with as reduction to net revenues include, but are not limited to, promotional early adoption permitted as of January 1, 2017. The Company currently discounts, sales incentives and certain other promotional activities. Costs expects to adopt ASU 2014-09 in the first quarter of 2018. The Company recognized in advertising, promotional and selling expenses include point of does not expect adoption of ASU 2014-09 to have a material impact on sale materials, samples and media advertising expenditures in local markets. its consolidated financial statements. In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), General and Administrative Expenses Simplifying the Measurement of Inventory. ASU 2015-11 is part of the FASB’s initiative to simplify accounting standards. The guidance requires The following expenses are included in general and administrative expenses an entity to recognize inventory within scope of the standard at the lower in the accompanying consolidated statements of comprehensive income: of cost or net realizable value. Net realizable value is the estimated selling general and administrative salary and benefit expenses, insurance costs, price in the ordinary course of business, less reasonable predictable costs professional service fees, rent and utility expenses, meals, travel and of completion, disposal and transportation. ASU 2015-11 will be effective entertainment expenses for general and administrative employees, and prospectively for the year beginning January 1, 2017. The Company is other general and administrative overhead costs. currently evaluating the impact of ASU 2015-11 and has preliminarily concluded that it will not have a significant impact on the consolidated financial statements. Stock-Based Compensation In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet The Company accounts for share-based awards in accordance with ASC Classification of Deferred Taxes. ASU 2015-17 is part of the FASB’s Topic 718, Compensation — Stock Compensation (“ASC 718”), which initiative to simplify accounting standards. The guidance requires an entity generally requires recognition of share-based compensation costs in to present deferred tax assets and deferred tax liabilities as noncurrent in financial statements based on fair value. Compensation cost is recognized the consolidated balance sheet. ASU 2015-17 permits entities to apply over the period during which an employee is required to provide services the amendments either prospectively or retrospectively. ASU 2015-17 in exchange for the award (the requisite service period). The amount will be effective for the year beginning January 1, 2017. The Company is of compensation cost recognized in the consolidated statements of currently evaluating the impact ASU 2015-17. As of December 31, 2016 comprehensive income is based on the awards ultimately expected to and December 26, 2015, the Company had $7.4 million and $7.0 million, vest, and therefore, reduced for estimated forfeitures. respectively, of current deferred tax assets on the consolidated balance sheets that would be classified as noncurrent under the new guidance. As permitted by ASC 718, the Company elected to use a lattice model, such as the binomial option-pricing model, to estimate the fair values of In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). stock options, with the exception of the 2008 and 2016 stock option grants The guidance requires lessees to recognize assets and liabilities on the to the Company’s Chief Executive Officer, which is considered to be a balance sheet for the rights and obligations created by all leases with terms market-based award and was valued utilizing the Monte Carlo Simulation of more than 12 months. ASU 2016-02 will be effective retrospectively for pricing model, which calculates multiple potential outcomes for an award the year beginning December 30, 2018, with early adoption permitted. and establishes fair value based on the most likely outcome. See Note As of December 31, 2016 and December 26, 2015, the Company had L for further discussion of the application of the option-pricing models. $15.9 million and $17.5 million, respectively, of contractual obligation on lease agreements that would be included on the consolidated balance sheets under the new guidance. Net Income Per Share In March, 2016, the FASB issued ASU No. 2016-09, Stock Compensation Basic net income per share is calculated by dividing net income by the (Topic 718), Improvements to Employee Share-Based Payment Accounting. weighted-average common shares outstanding. Diluted net income ASU 2016-09 is part of the FASB’s initiative to simplify accounting standards. per share is calculated by dividing net income by the weighted-average The guidance impacts several aspects of the accounting for employee common shares and potentially dilutive securities outstanding during share-based payment transactions, including accounting for income taxes the period using the treasury stock method or the two-class method, and forfeitures, as well as classification in the statement of cash flows. whichever is more dilutive. Under ASU 2016-09, excess tax benefits and deficiencies as a result of stock option exercises and restricted stock vesting are to be recognized as discrete items within income tax expense or benefit in the statement Recent Accounting Pronouncements of operations in the reporting period in which they occur. Additionally, under ASU 2016-09, excess tax benefits and deficiencies should be In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts classified along with other income tax cash flows as an operating activity. with Customers (Topic 606). ASU 2014-09 will supersede virtually all existing ASU 2016-09 will be effective for the year beginning January 1, 2017 and revenue guidance. Under this update, an entity is required to recognize may be applied retrospectively or prospectively. The impact ASU 2016-09 revenue upon transfer of promised goods or services to customers, in an will have on the Company’s consolidated financial statements will mainly amount that reflects the expected consideration received in exchange for depend on unpredictable future events, including the timing and value those goods or services. As such, an entity will need to use more judgment realized upon exercise of stock options versus the fair value when those and make more estimates than under the current guidance. ASU 2014-09 is options were granted. For the 2016 and 2015 fiscal years, the excess tax to be applied retrospectively either to each prior reporting period presented benefit from stock-based compensation arrangements was $12.5 million in the financial statements, or only to the most current reporting period and $15.4 million, respectively.

BOSTON BEER COMPANY Form 10-K 35 PART II Item 8 Financial Statements and Supplementary Data

C. Inventories

Inventories consist of raw materials, work in process and finished goods. are generally classified as current assets. The Company classifies hops Raw materials, which principally consist of hops, apple juice, other brewing inventory in excess of two years of forecasted usage in other long term materials and packaging, are stated at the lower of cost, determined on assets. The cost elements of work in process and finished goods inventory the first-in, first-out basis, or market. The Company’s goal is to maintain consist of raw materials, direct labor and manufacturing overhead. on-hand a supply of approximately two years for essential hop varieties, Inventories consisted of the following: in order to limit the risk of an unexpected reduction in supply. Inventories

(in thousands) December 31, 2016 December 26, 2015 Raw Materials $ 41,630 $ 42,123 Work in process 8,131 8,876 Finished Goods 9,054 8,261 58,815 59,260 Less portion in other long term assets (6,316) (2,798) $ 52,499 $ 56,462

D. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

(in thousands) December 31, 2016 December 26, 2015 Prepaid malt and barley $ 1,644 $ 3,184 Excise and other tax receivables 1,637 2,093 Insurance cash surrender value 1,254 — Supplier rebates 1,158 1,929 Prepaid insurance 1,144 1,047 Lease incentive receivable 113 1,584 Other 1,781 2,216 $ 8,731 $ 12,053

E. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

(in thousands) December 31, 2016 December 26, 2015 Machinery and plant equipment $ 420,486 $ 387,180 Kegs 70,024 71,391 Land 22,295 25,135 Building and building improvements 112,508 101,836 Office equipment and furniture 22,412 19,635 Leasehold improvements 14,147 12,037 661,872 617,214 Less accumulated depreciation (253,461) (207,288) $ 408,411 $ 409,926 The Company recorded depreciation and amortization expense related to these assets of $49.3 million, $43.4 million, and $34.8 million in fiscal years 2016, 2015, and 2014, respectively.

Impairment of Assets The Company evaluates its assets for impairment when events indicate that an asset or asset group may have suffered impairment. During 2016, 2015, and 2014, the Company recorded impairment charges of $0.7 million, $0.3 million, and $1.8 million, respectively.

Gain on Sale of Assets During 2016, the Company recognized a $1.0 million gain on the sale of land owned in Freetown, Massachusetts.

36 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

F. Goodwill

Goodwill represents the excess of the purchase price of the Company-owned The following table summarizes the Company’s changes to the carrying breweries over the fair value of the net assets acquired upon the completion amount of goodwill for the fifty-three weeks ended December 31, 2016 of the acquisitions. (in thousands):

Balance at Balance at December 26, 2015 Additions December 31, 2016 Goodwill $ 3,683 $ — $ 3,683

G. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(in thousands) December 31, 2016 December 26, 2015 Accrued deposits $ 15,814 $ 18,865 Employee wages, benefits and reimbursements 14,116 12,367 Advertising, promotional and selling expenses 8,562 11,249 Deferred revenue 5,381 3,949 Accrued stale beer 5,226 3,254 Accrued sales and use tax 2,437 2,656 Accrued excise taxes 2,255 3,976 Accrued freight 1,402 5,681 Other accrued liabilities 5,681 6,387 $ 60,874 $ 68,384

H. Revolving Line of Credit

The Company has a credit facility in place that provides for a $150.0 million lender, enter into any sale and leaseback transactions, merge, consolidate, revolving line of credit which has a term not scheduled to expire until or dispose of significant assets without the lender’s prior written consent, March 31, 2019. The Company may elect an interest rate for borrowings make or maintain any investments other than those permitted in the credit under the credit facility based on either (i) the Alternative Prime Rate (3.75% at agreement, or enter into any transactions with affiliates outside of the December 31, 2016) or (ii) the applicable LIBOR rate (0.72% at December 31, ordinary course of business. In addition, the credit agreement requires the 2016) plus 0.45%. The Company incurs an annual commitment fee of Company to obtain prior written consent from the lender on distributions 0.15% on the unused portion of the facility and is obligated to meet certain on account of, or in repurchase, retirement or purchase of its capital stock financial covenants, which are measured using earnings before interest, or other equity interests with the exception of the following: (a) distributions tax, depreciation and amortization (“EBITDA”) based ratios. The Company’s of capital stock from subsidiaries to The Boston Beer Company, Inc. and EBITDA to interest expense ratio was 11,352 as of December 31, 2016, Boston Beer Corporation (a subsidiary of The Boston Beer Company, Inc.), compared to a minimum allowable ratio of 2.00 and the Company’s total (b) repurchase from former employees of non-vested investment shares funded debt to EBITDA ratio was 0.00 as of December 31, 2016, compared of Class A Common Stock, issued under the Employee Equity Incentive to a maximum allowable ratio of 2.50. The Company was in compliance Plan, and (c) redemption of shares of Class A Common Stock as approved with all financial covenants as of December 31, 2016 and December 26, by the Board of Directors and payment of cash dividends to its holders 2015. There were no borrowings outstanding under the credit facility as of common stock. Borrowings under the credit facility may be used for of December 31, 2016 and December 26, 2015. working capital, capital expenditures and general corporate purposes of the Company and its subsidiaries. In the event of a default that has not There are also certain restrictive covenants set forth in the credit agreement. been cured, the credit facility would terminate and any unpaid principal Pursuant to the negative covenants, the Company has agreed that it will not: and accrued interest would become due and payable. enter into any indebtedness or guarantees other than those specified by the

BOSTON BEER COMPANY Form 10-K 37 PART II Item 8 Financial Statements and Supplementary Data

I. Income Taxes

Significant components of the provision for income taxes are as follows:

(in thousands) 2016 2015 2014 Current: Federal $ 35,390 $ 42,391 $ 30,595 State 6,108 7,403 8,262 Total current 41,498 49,794 38,857 Deferred: Federal 7,666 6,279 15,407 State 608 523 587 Total deferred 8,274 6,802 15,994 TOTAL PROVISION FOR INCOME TAXES $ 49,772 $ 56,596 $ 54,851

The Company’s reconciliations to statutory rates are as follows:

2016 2015 2014 Statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 3.6 3.4 4.0 Deduction relating to U.S. production activities (2.6) (2.7) (2.1) Change in valuation allowance (0.3) — — Other 0.6 0.8 0.8 36.3% 36.5% 37.7%

Significant components of the Company’s deferred tax assets and liabilities are as follows at:

(in thousands) December 31, 2016 December 26, 2015 Deferred tax assets: Accrued expenses $ 6,488 $ 7,435 Stock-based compensation expense 5,929 9,493 Inventory 1,117 2,398 Other 4,097 4,154 Total deferred tax assets 17,631 23,480 Valuation allowance (669) (1,036) Total deferred tax assets net of valuation allowance 16,962 22,444 Deferred tax liabilities: Property, plant and equipment (72,140) (69,226) Prepaid expenses (1,204) (1,475) Goodwill (879) (761) Total deferred tax liabilities (74,223) (71,462) NET DEFERRED TAX LIABILITIES $ (57,261) $ (49,018)

The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. Interest and penalties included in the provision for income taxes amounted to $0.0 million, $0.1 million, and $0.0 million for fiscal years 2016, 2015, and 2014, respectively. Accrued interest and penalties amounted to $0.3 million and $0.4 million at December 31, 2016 and December 26, 2015, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in thousands) 2016 2015 Balance at beginning of year $ 486 $ 368 Increases related to current year tax positions 80 44 Increases related to prior year tax positions 76 117 Decreases related to settlements (50) — Decreases related to lapse of statute of limitations (3) (43) BALANCE AT END OF YEAR $ 589 $ 486

Included in the balance of unrecognized tax benefits at December 31, 2016 As of December 31, 2016, the Company’s 2013, 2014 and 2015 and December 26, 2015 are potential net benefits of $0.5 million and federal income tax returns remain subject to examination by the Internal $0.4 million, respectively, that would favorably impact the effective tax rate Revenue Service (“IRS”). The Company’s state income tax returns remain if recognized. Unrecognized tax benefits are included in accrued expenses subject to examination for three or four years depending on the state’s in the accompanying consolidated balance sheets and adjusted in the statute of limitations. The Company is being audited by two states as of period in which new information about a tax position becomes available December 31, 2016. In addition, the Company is generally obligated to or the final outcome differs from the amount recorded. report changes in taxable income arising from federal income tax audits.

38 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

It is reasonably possible that the Company’s unrecognized tax benefits The Company’s short term income tax receivable as of December 26, may increase or decrease in 2017 if there is a completion of certain 2015 of $14.1 million in the accompanying consolidated balance sheets income tax audits; however, the Company cannot estimate the range of is primarily due to the Protecting Americans from Tax Hikes Act of 2015, such possible changes. The Company does not expect that any potential being enacted after 2015 corporate estimated tax payments were due changes would have a material impact on the Company’s financial position, on December 15, 2015. These tax extenders allow the Company to claim results of operations or cash flows. accelerated tax depreciation on qualified property, plant, and equipment additions, and the research & development tax credit on the 2015 federal As of December 31, 2016, the Company’s deferred tax assets include a corporate income tax return. The Company applied with the IRS for a capital loss carryforward. The capital loss carryforward, totaling $1.7 million $12.0 million quick refund of overpayment of estimate tax, and received as of December 31, 2016, which if unused, will expire in year 2019. For the this refund in the first quarter of 2016. year ended December 31, 2016, the Company recorded a net valuation allowance release of $0.3 million due to a decrease in the deferred tax asset for capital loss carryforwards.

J. Commitments and Contingencies

Contractual Obligations The Company had outstanding total non-cancelable contractual obligations of $173.4 million at December 31, 2016. These obligations are made up of hops, barley and wheat totaling $71.1 million, advertising contracts of $27.4 million, apples and other ingredients of $27.2 million, glass bottles of $16.6 million, operating leases of $15.9 million, equipment and machinery of $10.7 million, and other commitments of $4.5 million. As of December 31, 2016, projected cash outflows under contractual obligations for the remaining years under the contracts are as follows:

Payments Due by Period (in thousands) Total 2017 2018 2019 2020 2021 Thereafter Hops, barley and wheat $ 71,128 $ 27,784 $ 14,552 $ 14,692 $ 4,483 $ 4,878 $ 4,739 Advertising 27,430 26,825 499 106 — — — Apples and other ingredients 27,225 27,225 — — — — — Glass bottles 16,551 16,551 — — — — — Operating leases 15,900 3,343 2,965 2,683 2,569 2,625 1,715 Equipment and machinery 10,700 10,700 — — — — — Other 4,505 2,624 1,335 546 — — — TOTAL CONTRACTUAL OBLIGATIONS $ 173,439 $ 115,052 $ 19,351 $ 18,027 $ 7,052 $ 7,503 $ 6,454

The Company has entered into contracts for the supply of a portion of and maintenance costs, and vary by lease. These lease obligations expire its hops requirements. These purchase contracts extend through crop at various dates through 2022. Aggregate rent expense was $3.8 million, year 2022 and specify both the quantities and prices, denominated in $3.4 million, and $3.2 million in fiscal years 2016, 2015, and 2014, respectively. U.S. Dollar, Euros and New Zealand Dollars, to which the Company is committed. Hops purchase commitments outstanding at December 31, For the fiscal year ended December 31, 2016, the Company brewed over 2016 totaled $56.3 million, based on the exchange rates on that date. The 95% of its core brands volume at Company-owned breweries. In the normal Company does not use forward currency exchange contracts and intends course of its business, the Company has historically entered into various to purchase future hops using the exchange rate at the time of purchase. production arrangements with other brewing companies. Pursuant to these arrangements, the Company purchases the liquid produced by those Currently, the Company has entered into contracts for barley and wheat brewing companies, including the raw materials that are used in the liquid, with two major suppliers. The contracts include crop years 2016 and at the time such liquid goes into fermentation. The Company is required to 2017 and cover the Company’s barley, wheat, and malt requirements for repurchase all unused raw materials purchased by the brewing company 2017 and part of 2018. These purchase commitments outstanding at specifically for the Company’s beers at the brewing company’s cost upon December 31, 2016 totaled $14.8 million. termination of the production arrangement. The Company is also obligated to meet annual volume requirements in conjunction with certain production The Company sources some of its glass bottles needs pursuant to a arrangements, which are not material to the Company’s operations. Glass Bottle Supply Agreement with Anchor Glass Container Corporation (“Anchor”), under which Anchor is the supplier of certain glass bottles for The Company’s arrangements with other brewing companies require it to the Company’s Cincinnati Brewery and its Pennsylvania Brewery. This periodically purchase equipment in support of brewery operations. As of agreement also establishes the terms on which Anchor may supply glass December 31, 2016, there were no significant equipment purchase requirements bottles to other breweries where the Company brews its beers. Under outstanding under existing contracts. Changes to the Company’s brewing the agreement with Anchor, the Company has minimum and maximum strategy or existing production arrangements, new production relationships purchase commitments that are based on Company-provided production or the introduction of new products in the future may require the Company estimates which, under normal business conditions, are expected to be to purchase equipment to support the contract breweries’ operations. fulfilled. Minimum purchase commitments under this agreement, assuming the supplier is unable to replace lost production capacity cancelled by the Company, as of December 31, 2016 totaled $16.6 million. Litigation The Company has various operating lease agreements in place for facilities The Company is currently not a party to any pending or threatened litigation, and equipment as of December 31, 2016. Terms of these leases include, the outcome of which would be expected to have a material adverse effect in some instances, scheduled rent increases, renewals, purchase options on its financial condition or the results of its operations.

BOSTON BEER COMPANY Form 10-K 39 PART II Item 8 Financial Statements and Supplementary Data

K. Fair Value Measures

The Company defines fair value as the price that would be received to sell ••Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets an asset or be paid to transfer a liability in an orderly transaction between for identical assets or liabilities that the reporting entity has the ability to market participants at the measurement date. The Company applies the access at the measurement date. following fair value hierarchy, which prioritizes the inputs used to measure ••Level 2 — Level 2 inputs are inputs other than quoted prices included fair value into three levels and bases the categorization within the hierarchy within Level 1 that are observable for the asset or liability, either directly upon the lowest level of input that is available and significant to the fair or indirectly. If the asset or liability has a specified (contractual) term, a value measurement. The hierarchy gives the highest priority to unadjusted Level 2 input must be observable for substantially the full term of the quoted prices in active markets for identical assets or liabilities (Level 1 asset or liability. measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ••Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. All financial assets or liabilities that are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The assets or liabilities measured at fair value on a recurring basis are summarized in the table below (in thousands):

As of December 31, 2016 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 89,966 $ — $ — $ 89,966

As of December 26, 2015 Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 88,108 $ — $ — $ 88,108

The Company’s cash equivalents listed above represent money market Company considers the “Triple A” rated money market fund to be a large, mutual fund securities and are classified within Level 1 of the fair value highly-rated investment-grade institution. As of December 31, 2016 and hierarchy because they are valued using quoted market prices. The money December 26, 2015, the Company’s cash and cash equivalents balance market funds were invested substantially in United States Treasury and was $91.0 million and $94.2 million, respectively, including money market government securities. The Company does not adjust the quoted market funds amounting to $90.0 million and $88.1 million, respectively. price for such financial instruments. Cash, certificates of deposit, receivables and payables are carried at their Financial instruments that potentially subject the Company to credit risk cost, which approximates fair value, because of their short-term nature. consist principally of cash and cash equivalents held in money market Financial instruments not recorded at fair value in the consolidated financial funds. At December 31, 2016 and December 26, 2015, the Company statements are summarized in the table below (in thousands): had money market funds with a “Triple A” rated money market fund. The

As of December 31, 2016 Level 1 Level 2 Level 3 Total Note payable $ — $ 400 $ — $ 400

As of December 26, 2015 Level 1 Level 2 Level 3 Total Note payable $ — $ 458 $ — $ 458

The Company’s note payable listed above represents a term note agreement with Bank of America N.A and is classified within Level 2 of the fair value hierarchy because it is valued using observable inputs. The note has a maturity date of December 31, 2021 and the interest rate is fixed at an annual rate of 4.25%.

L. Common Stock and Share-Based Compensation

Class A Common Stock rights senior to Class A Common Stock, (b) certain alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles The Class A Common Stock has no voting rights, except (1) as required of Organization of the Company, (c) other amendments of the Articles by law, (2) for the election of Class A Directors, and (3) that the approval of Organization of the Company, (d) certain mergers or consolidations of the holders of the Class A Common Stock is required for (a) certain with, or acquisitions of, other entities, and (e) sales or dispositions of any future authorizations or issuances of additional securities which have significant portion of the Company’s assets.

40 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

Class B Common Stock On January 1, 2017, the Company granted options to purchase an aggregate of 5,185 shares of the Company’s Class A Common Stock The Class B Common Stock has full voting rights, including the right to with a weighted average fair value of $81.95 per share, of which all shares (1) elect a majority of the members of the Company’s Board of Directors and relate to performance-based stock options. (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales Restricted stock awards are also granted at the Board of Directors’ or dispositions of any significant portion of the Company’s assets, and discretion. During fiscal 2016, 2015, and 2014, the Company granted (d) equity-based and other executive compensation and other significant 21,653, 6,092, and 16,432 shares, respectively, of restricted stock corporate matters. The Company’s Class B Common Stock is not listed awards to certain senior managers and key employees, all of which are for trading. Each share of Class B Common Stock is freely convertible service-based and vest ratably over service periods of three to five years. into one share of Class A Common Stock, upon request of any Class B The Equity Plan also has an investment share program which permits holder, and participates equally in earnings. employees who have been with the Company for at least one year to All distributions with respect to the Company’s capital stock are restricted purchase shares of Class A Common Stock at a discount from current by the Company’s credit agreement, with the exception of distributions market value of 0% to 40%, based on the employee’s tenure with the of capital stock from subsidiaries to The Boston Beer Company, Inc. and Company. Investment shares vest ratably over service periods of five years. Boston Beer Corporation, repurchase from former employees of non- Participants may pay for these shares either up front or through payroll vested investment shares of Class A Common Stock issued under the deductions over an eleven-month period during the year of purchase. Company’s equity incentive plan, redemption of certain shares of Class A During fiscal 2016, 2015, and 2014, employees elected to purchase an Common Stock as approved by the Board of Directors and payment of aggregate of 9,199, 8,301, and 8,516 investment shares, respectively. cash dividends to its holders of common stock. On January 1, 2017, the Company granted 12,358 shares of restricted stock awards to certain senior managers and key employees of which all shares vest ratably over service periods of five years. On January 1, Employee Stock Compensation Plan 2017, employees elected to purchase 9,977 shares under the investment The Company’s Employee Equity Incentive Plan (the “Equity Plan”) currently share program. provides for the grant of discretionary options and restricted stock awards to The Company has reserved 6.7 million shares of Class A Common Stock employees, and provides for shares to be sold to employees of the Company for issuance pursuant to the Equity Plan, of which 0.7 million shares were at a discounted purchase price under its investment share program. The available for grant as of December 31, 2016. Shares reserved for issuance Equity Plan is administered by the Board of Directors of the Company, under cancelled employee stock options and forfeited restricted stock are based on recommendations received from the Compensation Committee returned to the reserve under the Equity Plan for future grants or purchases. of the Board of Directors. The Compensation Committee consists of three The Company also purchases unvested investment shares from employees independent directors. In determining the quantities and types of awards for who have left the Company at the lesser of (i) the price paid for the shares grant, the Compensation Committee periodically reviews the objectives of when the employee acquired the shares or (ii) the fair market value of the the Company’s compensation system and takes into account the position shares as of the date next preceding the date on which the shares are and responsibilities of the employee being considered, the nature and called for redemption by the Company. These shares are also returned to value to the Company of his or her service and accomplishments, his or the reserve under the Equity Plan for future grants or purchases. her present and potential contributions to the success of the Company, the value of the type of awards to the employee and such other factors as the Compensation Committee deems relevant. Non-Employee Director Options Stock options and related vesting requirements and terms are granted at The Company has a stock option plan for non-employee directors of the the Board of Directors’ discretion, but generally vest ratably over five-year Company (the “Non-Employee Director Plan”), pursuant to which each periods and, with respect to certain options granted to members of senior non-employee director of the Company is granted an option to purchase management, based on the Company’s performance. Generally, the shares of the Company’s Class A Common Stock upon election or re-election maximum contractual term of stock options is ten years, although the to the Board of Directors. Stock options issued to non-employee directors Board of Directors may grant options that exceed the ten-year term. During vest upon grant and have a maximum contractual term of ten years. During fiscal 2016, 2015, and 2014, the Company granted options to purchase fiscal 2016, 2015, and 2014 the Company granted options to purchase an 786,450, 18,723, and 7,090 shares, respectively, of its Class A Common aggregate of 14,040, 5,640, and 6,696 shares of the Company’s Class A Stock to employees at market price on the grant dates. Of the 2016 option Common Stock to non-employee directors, respectively. grants, 574,507 shares relate to a special long-term service-based retention stock option issued to the Chief Executive Officer, 173,135 shares relate to The Company has reserved 0.6 million shares of Class A Common Stock for other special long-term service-based retention stock options and 38,808 issuance pursuant to the Non-Employee Director Plan, of which 0.1 million shares relate to performance-based stock options. Of the 2015 option shares were available for grant as of December 31, 2016. Cancelled grants, 14,742 shares relate to performance-based option grants and 3,981 non-employee directors’ stock options are returned to the reserve under relate to special long-term service-based retention stock options. Of the the Non-Employee Director Plan for future grants. 2014 option grants, all shares relate to performance-based option grants.

BOSTON BEER COMPANY Form 10-K 41 PART II Item 8 Financial Statements and Supplementary Data

Option Activity Information related to stock options under the Equity Plan and the Non-Employee Director Plan is summarized as follows:

Weighted- Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Shares Price Term in Years (in thousands) Outstanding at December 26, 2015 1,127,162 $ 63.99 Granted 800,490 197.56 Forfeited (40,352) 196.86 Expired (1,980) 241.79 Exercised (537,087) 74.71 Outstanding at December 31, 2016 1,348,233 $ 141.98 6.44 $ 61,632 Exercisable at December 31, 2016 196,522 $ 86.52 4.14 $ 17,210 Vested and expected to vest at December 31, 2016 744,866 $ 97.34 4.39 $ 59,410

Of the total options outstanding at December 31, 2016, 72,573 shares value based on the most likely outcome. Under the Monte Carlo Simulation were performance-based options granted to multiple key employees pricing model, the Company calculated the weighted average fair value and 574,507 shares were service-based options granted to the Chief per share to be $8.41, and recorded stock-based compensation expense Executive Officer that are not expected to vest as a result of the planned of $0.3, $0.5, and $0.7, million related to this option in the fiscal 2016, retirement in 2018. 2015, and 2014, respectively. On January 1, 2016, the Company granted the Chief Executive Officer an Stock Option Grants to Chief Executive option to purchase 574,507 shares of its Class A Common Stock, which vests over a five-year period, commencing on January 1, 2019, at the rate Officer of 20% per year. The exercise price is determined by multiplying $201.91 by On January 1, 2008, the Company granted the Chief Executive Officer the aggregate percentage change in the DJ Wilshire 5000 Index from and an option to purchase 753,864 shares of its Class A Common Stock, after January 1, 2016 through the close of business on the trading date next which vests over a five-year period, commencing on January 1, 2014, at preceding each date on which the option is exercised, plus an additional the rate of 20% per year. The exercise price is determined by multiplying 1.5 percentage points per annum, prorated for partial years. The exercise $42.00 by the aggregate change in the DJ Wilshire 5000 Index from and price will not be less than $201.91 per share and the excess of the fair value after January 1, 2008 through the close of business on the trading date of the Company’s Class A Common Stock cannot exceed $150 per share next preceding each date on which the option is exercised. The exercise over the exercise price. At December 31, 2016, the stock option remained price will not be less than $37.65 per share and the excess of the fair unexercised as to 574,507 shares. If the stock option had been exercised value of the Company’s Class A Common Stock cannot exceed $70 per on December 31, 2016, the exercise price would have been $226.72 per share over the exercise price. At December 31, 2016 and December 26, share. The Company is accounting for this award as a market-based award 2015, 301,546 shares and 452,319 shares of the stock option remained which was valued utilizing the Monte Carlo Simulation pricing model, which outstanding, respectively. If the outstanding shares at December 31, 2016 calculates multiple potential outcomes for an award and establishes fair were exercised on that date, the exercise price would have been $99.85 value based on the most likely outcome. Under the Monte Carlo Simulation per share. If the outstanding shares at December 26, 2015 were exercised pricing model, the Company calculated the weighted average fair value per on that date, the exercise price would have been $135.40 per share. share to be $39.16. As a result of the Chief Executive Officer’s planned Reflected in the table above is the minimum exercise price of $37.65. The retirement in 2018, the Company estimated a 100% forfeiture rate related Company is accounting for this award as a market-based award which to this grant and in the fourth quarter of fiscal 2016 the Company reversed was valued utilizing the Monte Carlo Simulation pricing model, which a total of $3.6 million in stock-based compensation expense that had been calculates multiple potential outcomes for an award and establishes fair recorded during the first three quarters of fiscal 2016.

Stock-Based Compensation The following table provides information regarding stock-based compensation expense included in operating expenses in the accompanying consolidated statements of comprehensive income:

(in thousands) 2016 2015 2014 Amounts included in advertising, promotional and selling expenses $ 2,507 $ 2,943 $ 3,342 Amounts included in general and administrative expenses 3,641 3,722 3,515 TOTAL STOCK-BASED COMPENSATION EXPENSE $ 6,148 $ 6,665 $ 6,857 Amounts related to performance-based stock awards included in total stock-based compensation expense $ 203 $ 831 $ 1,378

42 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

As permitted by ASC 718, the Company uses a lattice model, such as the into account historical employee exercise patterns based on changes in the binomial option-pricing model, to estimate the fair values of stock options. Company’s stock price and other relevant variables. The weighted-average The Company believes that the Black-Scholes option-pricing model is less fair value of stock options granted during 2016, 2015, and 2014 was $87.70, effective than the binomial option-pricing model in valuing long-term options, $128.54, and $106.81 per share, respectively, as calculated using a binomial as it assumes that volatility and interest rates are constant over the life of the option-pricing model. This excludes the January 1, 2016 stock options option. In addition, the Company believes that the binomial option-pricing granted to the Chief Executive Officer with a weighted-average fair value model more accurately reflects the fair value of its stock awards, as it takes of $39.16, as calculated using the Monte Carlo Simulation pricing model. Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:

2016 2015 2014 Expected volatility 34.0% 34.2% 34.3% Risk-free interest rate 2.16% 2.16% 2.83% Expected dividends 0% 0% 0% Exercise factor 2.68 times 3.0 times 3.4 times Discount for post-vesting restrictions 0.0% 0.0% 0.0%

Expected volatility is based on the Company’s historical realized volatility. Under ASC 718, compensation expense is recognized less estimated The risk-free interest rate represents the implied yields available from the forfeitures. Because most of the Company’s equity awards vest on January 1st U.S. Treasury zero-coupon yield curve over the contractual term of the each year, the Company recognized stock-based compensation expense option when using the binomial option-pricing model. Expected dividend related to those awards, net of actual forfeitures. For equity awards that yield is 0% because the Company has not paid dividends in the past and do not vest on January 1st, the estimated forfeiture rate used was 5.0%, currently has no known intention to do so in the future. Exercise factor with the exception of the Chief Executive Officer’s 2016 equity award and discount for post-vesting restrictions are based on the Company’s which used a 100% forfeiture rate as a result of the planned retirement historical experience. in 2018. The forfeiture rate was based upon historical experience and the Company periodically reviews this rate to ensure proper projection Fair value of restricted stock awards is based on the Company’s traded of future forfeitures. stock price on the date of the grants. Fair value of investment shares is calculated using the binomial option-pricing model. The total fair value of options vested during 2016, 2015, and 2014 was $9.9 million, $4.1 million, and $3.8 million, respectively. The aggregate The Company uses the straight-line attribution method in recognizing intrinsic value of stock options exercised during 2016, 2015, and 2014 stock-based compensation expense for awards that vest based on service was $52.7 million, $37.7 million, and $45.8 million, respectively. conditions. For awards that vest subject to performance conditions, compensation expense is recognized ratably for each tranche of the award over the performance period if it is probable that performance conditions will be met. Based on equity awards outstanding as of December 31, 2016, there is $23.0 million of unrecognized compensation costs, net of estimated forfeitures, related to unvested share-based compensation arrangements that are expected to vest. Such costs are expected to be recognized over a weighted- average period of 3.09 years. The following table summarizes the estimated future annual stock-based compensation expense related to share-based arrangements existing as of December 31, 2016 that are expected to vest (in thousands):

2017 $ 5,707 2018 5,253 2019 3,952 2020 2,606 2021 2,060 Thereafter 3,422 TOTAL $ 23,000

Non-Vested Shares Activity The following table summarizes vesting activities of shares issued under the investment share program and restricted stock awards:

Weighted Number of Average Fair Shares Value Non-vested at December 26, 2015 60,922 $ 150.03 Granted 30,852 161.84 Vested (19,740) 114.12 Forfeited (7,066) 152.40 Non-vested at December 31, 2016 64,968 $ 166.29

19,740 shares vested in 2016 with a weighted average fair value of $114.12. 25,732 shares vested in 2015 with a weighted average fair value of $79.44. 38,329 shares vested in 2014 with a weighted average fair value of $53.82.

BOSTON BEER COMPANY Form 10-K 43 PART II Item 8 Financial Statements and Supplementary Data

Stock Repurchase Program In 1998, the Board of Directors authorized management to implement a stock repurchase program. As of December 31, 2016, the Company has repurchased a cumulative total of approximately 12.5 million shares of its Class A Common Stock for an aggregate purchase price of approximately $607.8 million as follows:

Aggregate Number of Purchase (in thousands) Shares Price Repurchased at December 28, 2013 10,892,459 $ 299,528 2014 repurchases 29,474 7,859 Repurchased at December 27, 2014 10,921,933 307,387 2015 repurchases 616,747 138,705 Repurchased at December 26, 2015 11,538,680 446,092 2016 repurchases 944,876 161,658 REPURCHASED AT DECEMBER 31, 2016 12,483,556 $ 607,750

M. Employee Retirement Plans and Post-Retirement Medical Benefits

The Company has one retirement plan covering substantially all non-union of assets under the Plan per year, excluding participant loans, is available employees; two other retirement plans, one of which covers substantially for paying eligible Plan expenses. The Company is responsible for the all union employees, and the other of which covers employees of a specific payment of any additional fees related to the management of the SACB union; and post-retirement medical benefits covering substantially all 401(k) Plan. Such fees are not material to the Company. union employees. The Samuel Adams Brewery Company, Ltd. Local Union No. 1199 Pension Plan (the “Local 1199 Pension Plan”) is a Company-sponsored defined Non-Union Plans benefit pension plan. It was established in 1991 and is open to all union employees who are covered by the Company’s collective bargaining The Boston Beer Company 401(k) Plan (the “Boston Beer 401(k) Plan”), agreement with Teamsters Local Union No. 1199 (“Local Union #1199”), which was established by the Company in 1993, is a Company-sponsored or persons on leave from the Company who are employed by Local Union defined contribution plan that covers a majority of the Company’s non-union #1199, and in either case who have completed 12 consecutive months employees who are employed by Boston Beer Corporation, American Craft of employment with at least 750 hours worked. The defined benefit is Brewery LLC, A & S Brewing Collaborative LLC, or Angry Orchard Cider determined based on years of service since July 1991. The Company made Company, LLC. All non-union employees of these entities are eligible to contributions of $219,000 and $188,000 in 2016 and 2015 respectively. participate in the Plan immediately upon employment. Participants may At December 31, 2016 and December 26, 2015, the unfunded projected make voluntary contributions up to 60% of their annual compensation, pension benefits were $1.9 million and $1.6 million, respectively. subject to IRS limitations. The Company matches each participant’s The Company provides a supplement to eligible retirees from Local #1, contribution. A maximum of 6% of compensation is taken into account Local #20, and Local Union #1199 to assist them with the cost of Medicare in determining the amount of the match. The Company matches 100% gap coverage after their retirement on account of age or permanent of the first $1,000 of the eligible compensation participants contribute. disability. To qualify for this benefit (collectively, the “Retiree Medical Plan”), Thereafter, the Company matches 50% of the eligible contribution. The an employee must have worked for at least 20 years for the Company or Company’s contributions to the Boston Beer 401(k) Plan amounted to its predecessor at the Company’s Cincinnati Brewery, must have been $3.5 million and $3.0 million in fiscal years 2016 and 2015, respectively. enrolled in the Company’s group medical insurance plan for at least 5 The basic annual administrative fee for the Boston Beer 401(k) Plan is years before retirement and, in the case of retirees from Local #20, for paid by the Plan’s investment fund revenue. In addition, per the Service at least 7 of the last 10 years of their employment, and must be eligible Provider Payment Agreement, a credit up to a maximum of two basis for Medicare benefits under the Social Security Act. The accumulated points multiplied by the total amount of assets under the Plan per year is post-retirement benefit obligation was determined using a discount rate available for paying eligible Plan expenses. Participant forfeitures are also of 4.25% at December 31, 2016 and 4.5% at December 26, 2015 and available for paying eligible Plan expenses. The Company is responsible a 2.5% health care cost increase based on the Cincinnati Consumer for the payment of any additional fees related to the management of the Price Index for the years 2016, 2015, and 2014. The effect of a 1% point Boston Beer 401(k) Plan. Such fees are not material to the Company. increase and the effect of a 1% point decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic post-retirement health care benefit costs Union Plans and on the accumulated post-retirement benefit obligation for health care The Samuel Adams Cincinnati Brewery 401(k) Plan for Represented benefits would not be significant. Employees (the “SACB 401(k) Plan”) is a Company-sponsored defined In addition, the comprehensive medical plan offered to currently employed contribution plan. It was established in 1997 and is available to all union members of Local #20 remains available to them should they retire after employees upon commencement of employment or, if later, attaining age reaching age 57, and before reaching age 65, with at least 20 years of 21. Participants may make voluntary contributions up to 60% of their annual service with the Company or its predecessor at the Company’s Cincinnati compensation to the SACB 401(k) Plan, subject to IRS limitations. Company Brewery. These eligible retirees may choose to continue to be covered contributions for fiscal 2016 and 2015 were insignificant. The basic annual under the Company’s comprehensive group medical plan until they reach administrative fee for the SACB 401(k) Plan is paid by the Plan’s investment the age when they are eligible for Medicare health benefits under the Social fund revenue. In addition, per the Service Provider Payment Agreement, a Security Act or coverage under a comparable State health benefit plan. credit up to a maximum of two basis points multiplied by the total amount Eligible retirees pay 100% of the cost of the coverage.

44 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

The funded status of the Local 1199 Pension Plan and the Retiree Medical Plan are as follows:

Local 1199 Pension Plan Retiree Medical Plan (in thousands) December 31, 2016 December 26, 2015 December 31, 2016 December 26, 2015 Fair value of plan assets at end of fiscal year $ 2,733 $ 2,471 $ — $ — Benefit obligation at end of fiscal year 4,611 4,105 708 671 UNFUNDED STATUS $ (1,878) $ (1,634) $ (708) $ (671)

The Local 1199 Pension Plan invests in a family of funds designed to The basis of the long-term rate of return assumption of 6.5% reflects the minimize excessive short-term risk and focus on consistent, competitive Local 1199 Plan’s current targeted asset mix of approximately 35% debt long-term performance, consistent with the funds’ investment objectives. securities and 65% equity securities with assumed average annual returns The fund-specific objectives vary and include maximizing long-term of approximately 3% to 6% for debt securities and 8% to 12% for equity returns both before and after taxes, maximizing total return from capital securities. It is assumed that the Local 1199 Pension Plan’s investment appreciation plus income, and investing in funds that invest in common portfolio will be adjusted periodically to maintain the targeted ratios of stock of companies that cover a broad range of industries. The Local debt securities and equity securities. Additional consideration is given 1199 Plan’s investments are considered category 1 assets in the fair value to the Local 1199 Plan’s historical returns as well as future long-range hierarchy and the fair values were determined by reference to period-end projections of investment returns for each asset category. The assumed quoted market prices. discount rate in estimating the pension obligation was 4.25% and 4.50% at December 31, 2016 and December 26, 2015, respectively. The Local 1199 Plan’s weighted-average asset allocations at the measurement dates by asset category are as follows:

Asset Category December 31, 2016 December 26, 2015 Equity securities 66% 67% Debt securities 34% 33% TOTAL 100% 100%

N. Net Income per Share

Net Income per Common Share — Basic The following table sets forth the computation of basic net income per share using the two-class method:

December 31, December 26, December 27, (in thousands, except per share data) 2016 (53 weeks) 2015 2014 NET INCOME $ 87,349 $ 98,414 $ 90,743 Allocation of net income for basic: Class A Common Stock $ 63,717 $ 71,798 $ 64,027 Class B Common Stock 23,190 26,154 26,207 Unvested participating shares 442 462 509 $ 87,349 $ 98,414 $ 90,743 Weighted average number of shares for basic: Class A Common Stock 9,189 9,619 9,202 Class B Common Stock* 3,344 3,504 3,766 Unvested participating shares 64 62 73 12,597 13,185 13,041 Net income per share for basic: CLASS A COMMON STOCK $ 6.93 $ 7.46 $ 6.96 CLASS B COMMON STOCK $ 6.93 $ 7.46 $ 6.96 * Change in Class B Common Stock resulted from the conversion of 150,000 shares to Class A Common Stock on May 6, 2015, 100,000 shares to Class A Common Stock on October 26, 2015, 125,000 shares to Class A Common Stock on November 4, 2016 and 45,000 shares to Class A Common Stock on November 30, 2016, with the ending number of shares reflecting the weighted average for the period.

BOSTON BEER COMPANY Form 10-K 45 PART II Item 8 Financial Statements and Supplementary Data

Net Income per Common Share — Diluted The Company calculates diluted net income per share for common stock using the more dilutive of (1) the treasury stock method, or (2) the two-class method, which assumes the participating securities are not exercised or converted. The following tables set forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the two-class method for unvested participating shares:

Fifty-three weeks ended December 31, 2016 Earnings to Common Common (in thousands, except per share data) Shareholders Shares EPS As reported — basic $ 63,717 9,189 $ 6.93 Add: effect of dilutive potential common shares Share-based awards — 263 Class B Common Stock 23,190 3,344 Net effect of unvested participating shares 9 NET INCOME PER COMMON SHARE — DILUTED $ 86,916 12,796 $ 6.79

Fifty-two weeks ended December 26, 2015 Earnings to Common Common (in thousands, except per share data) Shareholders Shares EPS As reported — basic $ 71,798 9,619 $ 7.46 Add: effect of dilutive potential common shares Share-based awards — 397 Class B Common Stock 26,154 3,504 Net effect of unvested participating shares 14 NET INCOME PER COMMON SHARE — DILUTED $ 97,966 13,520 $ 7.25

Fifty-two weeks ended December 27, 2014 Earnings to Common Common (in thousands, except per share data) Shareholders Shares EPS As reported — basic $ 64,027 9,202 $ 6.96 Add: effect of dilutive potential common shares Share-based awards — 516 Class B Common Stock 26,207 3,766 Net effect of unvested participating shares 19 — NET INCOME PER COMMON SHARE — DILUTED $ 90,253 13,484 $ 6.69

Basic net income per common share for each share of Class A Common Weighted average stock options to purchase 712,000, 16,000, and 11,000 Stock and Class B Common Stock is $6.93, $7.46, and $6.96 for the fiscal shares of Class A Common Stock were outstanding during fiscal 2016, years 2016, 2015, and 2014, respectively, as each share of Class A and 2015, and 2014, respectively, but not included in computing diluted income Class B participates equally in earnings. Shares of Class B are convertible per share because their effects were anti-dilutive. Additionally, performance- at any time into shares of Class A on a one-for-one basis at the option based stock options to purchase 35,000, 15,000, and 30,000 shares of of the stockholder. Class A Common Stock were outstanding during fiscal 2016, 2015, and 2014, respectively, but not included in computing dilutive income per share because the performance criteria of these stock options were not met as of December 31, 2016, December 26, 2015, and December 27, 2014, respectively.

46 BOSTON BEER COMPANY Form 10-K PART II Item 8 Financial Statements and Supplementary Data

O. Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income represents amounts of tax effect, recognized as components of net periodic benefit costs and unrecognized actuarial gains or losses related to the Company sponsored currency translation adjustments. The following table details the changes defined benefit pension plan and post-retirement medical plan, net of tax in accumulated other comprehensive (loss) income for 2016, 2015, and effect and currency translation adjustments. Changes in accumulated 2014 (in thousands): other comprehensive loss represent actuarial losses or gains, net of Accumulated Other Comprehensive (Loss) Income Balance at December 28, 2013 $ (417) Deferred pension and other post-retirement benefit costs, net of taxes of $466 (734) Amortization of Deferred benefit costs, net of tax of ($11) 18 Balance at December 27, 2014 $ (1,133) Deferred pension and other post-retirement benefit costs, net of taxes of ($99) 130 Amortization of Deferred benefit costs, net of tax of ($43) 74 Currency translation adjustment (22) Balance at December 26, 2015 $ (951) Deferred pension and other post-retirement benefit costs, net of taxes of ($69) 122 Amortization of Deferred benefit costs, net of tax of $101 (175) Currency translation adjustment (99) BALANCE AT DECEMBER 31, 2016 $ (1,103)

P. Valuation and Qualifying Accounts

The Company maintains reserves against accounts receivable for doubtful accounts and inventory for obsolete and slow-moving inventory. The Company also maintains reserves against accounts receivable for distributor promotional allowances. In addition, the Company maintains a reserve for estimated returns of stale beer, which is included in accrued expenses. Balance at Amounts Beginning of Net Provision Charged Against Balance at End (In thousands) Period (Recovery) Reserves of Period Allowance for Doubtful Accounts 2016 $ 244 $ (244) $ — $ — 2015 $ 144 $ 165 $ (65) $ 244 2014 $ 160 $ (16) $ — $ 144

Balance at Amounts Beginning of Net Provision Charged Against Balance at End (In thousands) Period (Recovery) Reserves of Period Discount Accrual 2016 $ 2,813 $ 33,157 $ (32,892) $ 3,078 2015 $ 3,006 $ 33,204 $ (33,397) $ 2,813 2014 $ 2,602 $ 28,448 $ (28,044) $ 3,006

Balance at Amounts Beginning of Net Provision Charged Against Balance at End (In thousands) Period (Recovery) Reserves of Period Inventory Obsolescence Reserve 2016 $ 1,525 $ 4,707 $ (3,970) $ 2,262 2015 $ 1,328 $ 4,045 $ (3,848) $ 1,525 2014 $ 1,616 $ 6,130 $ (6,418) $ 1,328

Balance at Amounts Beginning of Net Provision Charged Against Balance at End (In thousands) Period (Recovery) Reserves of Period Stale Beer Reserve 2016 $ 3,254 $ 10,466 $ (8,494) $ 5,226 2015 $ 2,422 $ 7,780 $ (6,948) $ 3,254 2014 $ 1,754 $ 5,648 $ (4,980) $ 2,422

BOSTON BEER COMPANY Form 10-K 47 PART II Item 8 Financial Statements and Supplementary Data

Q. Subsequent Events

As disclosed in Note L, on January 1, 2017 the Company granted stock The Company evaluated subsequent events occurring after the balance options and restricted stock awards and employees elected to purchase sheet date, December 31, 2016, and concluded that there was no event of shares under the investment share purchase program. which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying As disclosed in Form 8-K filed with the SEC on February 6, 2017, the consolidated financial statements. Company announcement the planned retirement of its Chief Executive Officer expected in 2018.

R. Quarterly Results (Unaudited)

The Company’s fiscal quarters are consistently determined year to year and generally consist of 13 weeks, except in those fiscal years in which there are fifty-three weeks where the last fiscal quarters then consist of 14 weeks. In management’s opinion, the following unaudited information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future quarters.

For Quarters Ended December 31, September 24, June 25, March 26, December 26, September 26, June 27, March 28, 2016(1) 2016 2016 2016 2015 2015 2015 2015 (14 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (In thousands, except per share data) Net revenue $ 219,370 $ 253,433 $ 244,816 $ 188,827 $ 215,133 $ 293,094 $ 252,204 $ 199,503 Gross profit 107,656 133,607 126,876 91,531 108,767 157,010 136,225 99,615 Operating income 34,325 50,309 41,788 11,237 26,338 60,879 46,819 22,138 NET INCOME $ 22,166 $ 31,530 $ 26,621 $ 7,032 $ 16,115 $ 38,624 $ 29,932 $ 13,743 NET INCOME PER SHARE — BASIC $ 1.77 $ 2.53 $ 2.11 $ 0.55 $ 1.25 $ 2.93 $ 2.24 $ 1.04 NET INCOME PER SHARE — DILUTED $ 1.75 $ 2.48 $ 2.06 $ 0.53 $ 1.21 $ 2.85 $ 2.18 $ 1.00 (1) During the fourth quarter of 2016, the Company recorded a $3.6 million decrease in stock-based compensation expense related to the planned retirement of the Company’s Chief Executive Officer in 2018.

48 BOSTON BEER COMPANY Form 10-K PART II Item 9A Controls and Procedures

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

ITEM 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in the Company’s reports filed with or submitted to the SEC. (b) Management’s Report on Internal Control Over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 framework). Based on its assessment, the Company believes that, as of December 31, 2016, the Company’s internal control over financial reporting is effective based on those criteria. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

BOSTON BEER COMPANY Form 10-K 49 PART II Item 9B Other Information

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of The Boston Beer Company, Inc. Boston, Massachusetts We have audited the internal control over financial reporting of The Boston Beer Company, Inc. and subsidiaries (the “Company”), as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our report dated February 22, 2017 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Boston, Massachusetts February 22, 2017 (c) Changes in internal control over financial reporting No changes in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. Other Information

None.

50 BOSTON BEER COMPANY Form 10-K PART III

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

In December 2002, the Board of Directors of the Company adopted a (i) Code intends to disclose any amendment to, or waiver from, a provision of of Business Conduct and Ethics that applies to its Chief Executive Officer its code of ethics that applies to the Company’s Chief Executive Officer and its Chief Financial Officer, and (ii) Corporate Governance Guidelines. or Chief Financial Officer and that relates to any element of the Code of The Code of Business Conduct and Ethics was amended effective Ethics definition enumerated in Item 406 of Regulation S-K by posting August 1, 2007 to provide for a third-party whistleblower hotline. These, such information on the Company’s website. as well as the charters of each of the Board Committees, are posted on the Company’s website, www.bostonbeer.com, and are available in print The information required by Item 10 is hereby incorporated by reference to any shareholder who requests them. Such requests should be directed from the registrant’s definitive Proxy Statement for the 2017 Annual Meeting to the Investor Relations Department, The Boston Beer Company, Inc., to be held on May 18, 2017. One Design Center Place, Suite 850, Boston, MA 02210. The Company

ITEM 11. Executive Compensation

The Information required by Item 11 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 2017 Annual Meeting to be held on May 18, 2017.

BOSTON BEER COMPANY Form 10-K 51 PART III Item 12 Security Ownership of Certain Beneficial Owners andM anagement and Related Stockholder Matters

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership

The information required by Item 12 with respect to security ownership of certain beneficial owners and management is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 2017 Annual Meeting to be held on May 18, 2017.

Related Stockholder Matters

EQUITY COMPENSATION PLAN INFORMATION

Number of Securities Number of Securities to be Issued Upon Weighted-Average Remaining Available Exercise of Exercise Price of for Future Issuance Outstanding Options, Outstanding Options, Under Equity Plan Category Warrants and Rights Warrants and Rights Compensation Plans Equity Compensation Plans Approved by Security Holders 1,348,233 $ 141.98 753,160 Equity Compensation Plans Not Approved by Security Holders N/A N/A N/A TOTAL 1,348,233 $ 141.98 753,160

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 2017 Annual Meeting to be held on May 18, 2017.

ITEM 14. Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 2017 Annual Meeting to be held on May 18, 2017.

52 BOSTON BEER COMPANY Form 10-K PART IV

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements. The following financial statements are filed as a part of this report:

Page Report of Independent Registered Public Accounting Firm 26 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2016 and December 26, 2015 28 Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, December 26, 2015, and December 27, 2014 29 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, December 26, 2015, and December 27, 2014 30 Consolidated Statements of Cash Flows for the years ended December 31, 2016, December 26, 2015, and December 27, 2014 31 Notes to the Consolidated Financial Statements 32

(a) 2. Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they are inapplicable or the required information is shown in the consolidated financial statements, or notes thereto, included herein. (b) Exhibits The following is a list of exhibits filed as part of this Form 10-K:

Exhibit No. Title 3.1 Amended and Restated By-Laws of the Company, dated June 2, 1998 (incorporated by reference to Exhibit 3.5 to the Company’s Form 10-Q filed on August 10, 1998). 3.2 Restated Articles of Organization of the Company, dated November 17, 1995, as amended August 4, 1998 (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q filed on August 10, 1998). 4.1 Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement No. 33-96164). 10.1 Deferred Compensation Agreement between the Partnership and Alfred W. Rossow, Jr., effective December 1, 1992 (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement No. 33-96162). 10.2 Stockholder Rights Agreement, dated as of December, 1995, among The Boston Beer Company, Inc. and the initial Stockholders (incorporated by reference to the Company’s Form 10-K, filed on April 1, 1996). 10.3 Second Amended and Restated Credit Agreement between The Boston Beer Company, Inc. and Boston Beer Corporation, as Borrowers, and Bank of America, N.A. (successor-in-merger to Fleet National Bank), effective as of July 1, 2002 (incorporated by reference to the Company’s 10-Q, filed on August 13, 2002). 10.4 Letter Agreement dated August 4, 2004 amending the Second Amended and Restated Credit Agreement between Bank of America, N.A. (successor-in-merger to Fleet National Bank) and The Boston Beer Company, Inc. and Boston Beer Corporation (incorporated by reference to the Company’s 10-Q, filed on November 4, 2004). 10.5 Amendment dated February 27, 2007 to the Second Amended and Restated Credit Agreement between Bank of America, N.A., successor-in-merger to Fleet National Bank, and The Boston Beer Company, Inc. and Boston Beer Corporation (incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 15, 2007). 10.6 Amendment to Credit Agreement by and among the Company and Boston Beer Corporation, as borrowers, and Bank of America, N.A., as the lender, effective as of March 10, 2008 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2008). +10.7 Production Agreement between Samuel Adams Brewery Company, Ltd. and Brown-Forman Distillery Company, a division of Brown-Forman Corporation, effective as of April 11, 2005 (incorporated by reference to the Company’s 10-Q filed on May 5, 2005). +10.8 Brewing Services Agreement between CBC Latrobe Acquisition, LLC and Boston Beer Corporation dated March 28, 2007 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2007).

BOSTON BEER COMPANY Form 10-K 53 PART IV Item 16 Form 10-K Summary

Exhibit No. Title +10.9 Office Lease Agreement between Boston Design Center LLC and Boston Beer Corporation dated March 24, 2006 (“Office Lease Agreement”), as amended on September 29, 2006, October 31, 2007, March 25, 2008, August 27, 2012, February 22, 2013, and June 3, 2015 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2006 and Annual Report on Form 10-K filed on February 18, 2016). 10.11 Stock Option Agreement between the Company and Martin F. Roper entered into effective as of January 1, 2008 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2008). 10.12 The 1996 Stock Option Plan for Non-Employee Directors, originally adopted in 1996 and amended and restated on October 19, 2004, as amended on October 30, 2009, effective as of January 1, 2010 (incorporated by reference to the Company’s Post-Effective Amendment to its Registration Statement on Form S-8 filed on November 28, 2009); amended and restated on December 12, 2012, effective as of January 1, 2012; amended and restated on March 9, 2016, effective as of March 9, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on July 21, 2016). 10.13 Amendment dated January 24, 2014 to the Second Amended and Restated Credit Agreement between Bank of America, N.A., successor-in-merger to Fleet National Bank, and The Boston Beer Company, Inc. and Boston Beer Corporation (incorporated by reference to the Company’s Current Report on Form 8-K filed on January 28, 2014). 10.14 The Boston Beer Company, Inc. Employee Equity Incentive Plan, as amended on February 23, 1996, December 20, 1997, December 19, 2005, December 19, 2006, December 21, 2007, October 30, 2009, October 8, 2013, October 8, 2014, and December 9, 2015 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on February 18, 2016). 10.15 Stock Option Agreement between the Company and Martin F. Roper entered into effective as of January 1, 2016 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on February 18, 2016). 10.16 Offer Letter to Frank H. Smalla, Senior Vice President, Finance dated December 15, 2015 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on February 18, 2016). 10.17 Offer Letter to Quincy B. Troupe, Senior Vice President, Supply Chain dated December 18, 2015 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on February 18, 2016). 10.18 Martin F. Roper Retirement Letter Agreement dated February 2, 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed on February 6, 2017) 10.19 Martin F. Roper Proprietary Information and Restrictive Covenant Agreement dated February 2, 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed on February 6, 2017) *10.20 Offer Letter to Jonathan N. Potter, Chief Marketing Officer, dated June 7, 2016. *11.1 The information required by exhibit 11 has been included in Note N of the notes to the consolidated financial statements. *21.5 List of subsidiaries of The Boston Beer Company, Inc. effective as of December 31, 2016. *23.1 Consent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm. *23.2 Consent of Ernst & Young LLP, an Independent Registered Public Accounting Firm. *31.1 Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document *101.SCH XBRL Taxonomy Extension Schema Document *101.CAL XBRL Taxonomy Calculation Linkbase Document *101.LAB XBRL Label Linkbase Document *101.PRE XBRL Taxonomy Presentation Linkbase Document *101.DEF XBRL Definition Linkbase Document * Filed with this report. + Portions of this Exhibit were omitted pursuant to an application for an order declaring confidential treatment filed with and approved by the Securities and Exchange Commission.

ITEM 16. Form 10-K Summary

Not applicable.

54 BOSTON BEER COMPANY Form 10-K PART IV Signatures

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 22nd day of February 2017.

THE BOSTON BEER COMPANY, INC. /s/MARTIN F. ROPER Martin F. Roper President and Chief Executive Officer (principal executive officer)

Pursuant to the requirements of the Securities and Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

Signature Title /s/MARTIN F. ROPER President, Chief Executive Officer (principal executive officer) and Director Martin F. Roper /s/FRANK H. SMALLA Chief Financial Officer (principal financial officer) Frank H. Smalla /s/MATTHEW D. MURPHY Chief Accounting Officer (principal accounting officer) Matthew D. Murphy /s/DAVID A. BURWICK Director David A. Burwick /s/DAVID P. FIALKOW Director David P. Fialkow /s/CYNTHIA A. FISHER Director Cynthia A. Fisher /s/C. JAMES KOCH Chairman and Director C. James Koch /s/JAY MARGOLIS Director Jay Margolis /s/MICHAEL SPILLANE Director Michael Spillane /s/GREGG A. TANNER Director Gregg A. Tanner /s/JEAN-MICHEL VALETTE Director Jean-Michel Valette

BOSTON BEER COMPANY Form 10-K 55 Designed and Published by Labrador-company.com THE BOSTON BEER COMPANY, INC. CORPORATE & INVESTOR INFORMATION

2017 ANNUAL BOARD OF SHAREHOLDERS MEETING DIRECTORS May 18, 2017 at 9:00 a.m. Samuel Adams Brewery, 30 Germania Street, Boston, MA David A. Burwick, President & Chief Executive Officer, Peet’s Coffee & Tea, Inc. STOCK EXCHANGE LISTING David P. Fialkow, Managing The Class A Common Stock of The Boston Beer Company, Inc. is Director, General Catalyst Partners traded on the New York Stock Exchange under the symbol SAM Cynthia A. Fisher, Founder & Managing Director, WaterRev, LLC REGISTRAR & TRANSFER C. James Koch, Chairman AGENT & Founder, The Boston Beer Computershare Company, Inc. 480 Washington Boulevard, Jersey City, NJ 07310-1900 Jay Margolis, Chairman, Intuit Telephone: 888-877-2890 Consulting www.computershare.com Martin F. Roper, President & Chief Executive Officer, The Boston Beer DIRECT STOCK Company, Inc. PURCHASE PLAN Michael Spillane, President of Information about the Company’s direct stock purchase plan, Product & Merchandising, Nike Inc. administered by Computershare may be obtained by calling 888- Gregg A. Tanner, Advisor, Dean 877-2890 or by visiting www.computershare.com Foods Company Jean-Michel Valette, Chairman, The Company provides copies of its SEC Quarterly Reports on Form Select Comfort Corporation 10-Q, Current Reports on Form 8-K, Earnings Press Releases, Proxy Statements, and corporate governance information free of charge EXECUTIVE at www.bostonbeer.com. You may also write to Investor Relations OFFICERS Department, The Boston Beer Company, Inc., Innovation & Design Building, One Design Center Place, Suite 850, Boston, MA 02210. C. James Koch, Chairman & Founder Customers are invited to visit the Samuel Adams website at www.samueladams.com to learn more about the brewery and Martin F. Roper, President & Chief its beers. The news media should direct questions to the Public Executive Officer Relations department at 617-368-5060 Cheryl A. Fisher, Vice President, Human Resources John C. Geist, Chief Sales Officer David L. Grinnell, Vice President, Brewing Tara L. Heath, Vice President, Legal & Deputy General Counsel Matthew D. Murphy, Chief Accounting Officer Jonathan N. Potter, Chief Marketing Officer Frank H. Smalla Treasurer and Chief Financial Officer Quicy B. Troupe Senior Vice President, Supply Chain

The Boston Beer Company, Inc. Innovation & Design Building | One Design Center Place, Suite 850, Boston, MA 02210 2016 DRINK LIST

SAMUEL ADAMS A&S BREWING

20 Pounds of Pumpkin Mesquite BBQ Brown Ale Angel City Citrus Wheat Belgian Session New World Tripel Angel City IPA Black IPA Nitro Coffee Stout Angel City LAger Blueberry Hill Lager Nitro IPA Angel City Pilsner Bonfire Blonde Nitro White Ale Concrete Beach Rica Boston 26.2 Brew Noble Pils Concrete Beach Stiltsville Boston Ale OctoberFest Coney Island 1609 Amber Boston Lager Old Fezziwig Ale Coney Island Freaktoberfest Chai IPA Porch Rocker Coney Island Hard Cherry Cream Ale Cherry Wheat Rebel Cascade Coney Island Hard Ginger Ale Chocolate Bock Rebel Grapefruit Coney Island Hard Orange Cream Ale Cold Snap Rebel IPA Coney Island Hard Root Beer Cream Stout Rebel Juiced Coney Island Home Plate Pale Ale Crystal Pale Ale Rebel Raw Coney Island Lager Double Black Lager Rebel Rouser Coney Island Mermaid Pilsner Double Bock Roggen Wolf Coney Island Overpass IPA Double Pilsner Scotch Ale Coney Island Plunge Downtime Pilsner Session Ale Aloha Traveler Ella Blanc Stony Brook Red Count Traveler Escape Route Summer Ale Curious Traveler Fresh as Helles Third Voyage IPA Eurodiesel Traveler Ginger Beer Thirteenth Hour Stout Grapefruit Shandy Traveler Got to Gose Toasted Caramel Bock Honey Ginger Shandy Traveler Grumpy Monk White Christmas IPA Traveler Hopflake IPA Whitewater IPA Jack-O-Traveler Hoppy Red Winter Lager Jolly Traveler Latitude 48 IPA Sam Adams Light Time Traveler Lychee Pear Pale Ale LongShot Belgian Golden Strong Maple Ale LongShot Flanders Red LongShot Raspberry Berliner Weisse TRULY SPIKED ANGRY ORCHARD TWISTED TEA & SPARKLING

Apple Ginger Blueberry Colima Lime Cinnful Apple Bourbon Barrel Grapefruit & Pomelo Crisp Apple Frosted Cherry Pomegranate Easy Apple Half & Half Sicilian Blood Orange Elderflower Light Green Apple Mango Hop’n Mad Original Iceman Peach Knotty Pear Raspberry Stone Dry Strawberry Lime Strawman Twisted Lemonade Summer Honey Twisted Strawberry Lemonade The Muse Twisted Watermelon Lemonade The Old Fashioned Walden Hollow